FX Forward
Foreign currency purchase based on preferential foreign exchange rate at a specified future date.
FX Forward:
- intended for protection of future cash flows
- is calculated based on current market exchange rate and the difference of market interest rates for the currencies of a currency pair of the FX forward contract.
FX Forward advantages:
- Simplify and effectively enhance foreign exchange risk management in business operations
- You do not need to have funds on your account at the time of agreement, but only upon maturity of the transaction.
- he maturity date can be extended, and the transaction can be closed before the original maturity date.
FX Forwarda risks:
- Changes in market exchange rates do not affect the contracted transaction; it will always be executed at the agreed-upon rate
- An FX Forward contract cannot be canceled, only deferred or closed based on the current market exchange rate—there is a risk of negative exchange rate differences.