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Forward ContractsForward foreign exchange contracts are useful for managing exposures beyond spot contracts. Forward contracts allow you to secure an exchange rate now for settlement at a future date. This hedging instrument can protect profit margins and increase your company's competitive standing internationally. Anticipated foreign payables or receivables can be contracted at today's market levels to protect against currency fluctuations. Each forward contract includes 2 components. The first is the spot, or current value of the currencies involved. The second involves the interest rate differentials between the two currencies. The interest rate component allows markets to adjust for the time value of money. If the spot is for settlement in 2 days, the forwards will allow pricing to reflect which currency is more attractive to hold beyond spot. A forward contract is either more or less attractive, depending upon whether you are buying or selling a currency with a higher rate of interest. Commercial Banking |
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Consumer
