The world is not a perfect
place. It is often difficult to determine exactly when a payment will take
place. In such cases, Window Forward contracts can be very helpful.
Window Forward contracts work in same manner that forward contracts do with
one exception: allowing the settlement over a period of time rather than one
specific date. This can provide greater flexibility and convenience to you.
The timing of international transfers is typically contingent upon factors
that depend on a series of events.
Production or shipment dates, the conclusion of legal matters, and invoice
discounting all can have an impact on when payments are released. Even when
settlement dates are not certain, it is still possible to hedge foreign currency
transactions by the use of a Window Forward contract.
Foreign Exchange
Products and Services
• Foreign
Exchange Services
• Spot
Contracts
• Forward
Contracts
•
Window Forward
Contracts
• International Check Clearing
• Foreign Draft Issuance
• International Wire Transfers
• Currency Notes
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Your company
has awarded a contract to a German supplier for a new piece of machinery.
Payments will take place upon certain milestones in the production phase.
One-third of the contract value will be paid at the contract signing, one
third when design is completed, and the final third upon shipment. The first
portion probably would be handled by using a spot contract. Both of the subsequent
payment dates are uncertain.
Your Engineering Department, along with the supplier's technical staff, has
determined that design should be completed in the first half of August, with
shipment one month thereafter. To hedge this exposure, your company could
place two window contracts in place—the first with a range of value dates
from August 1 through August 15; the second with a range of settlement dates
from September 1 through September 15.
By handling this transaction with window contracts, your company would simply inform California Bank & Trust of the specific date within that range, that payment should be made.
The transaction remains hedged and you retain the flexibility to handle the transaction with a minimal effort
Example:
