Forward Contracts

With forward foreign exchange contracts, you can manage currency exposure beyond the spot contract price securing an exchange rate now for settlement at a future date.

This hedging technique can protect profit margins and increase your competitive standing worldwide. Anticipated foreign payables or receivables can be contracted at today's market levels to protect against future currency fluctuations.

Each forward contract includes two components. The first is the spot, or current value of the currencies. The second factors in 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 two days, the forwards will allow pricing to reflect which currency is more attractive to hold beyond spot. A forward contract is either more attractive or less attractive, depending upon whether you are buying or selling a currency with a higher rate of interest.

For more information on using forward contracts, contact a Foreign Exchange Trading Specialist.