Forward Exchange Contract

Summary of Forward Exchange Contract

An agreement to exchange, at a specified future date, a fixed number of units of one currency for a fixed number of units of another currency. Such contracts are often procured by merchants when they must settle future accounts in a foreign currency and wish to protect against possible losses due to fluctuations in the rate of exchange. The rate of exchange specified in the contract is the forward rate.

(Main Author: William J. Miller)

Forward Exchange Contract in International Trade

Meaning of Forward Exchange Contract, according to the Dictionary of International Trade (Global Negotiator): A contract for the delivery of a specified amount of a named currency at a specified future date in return for a specified amount of another named currency. Forward exchange contracts enable importers and exporters who will make and receive payments in a foreign currency at a future time to protect themselves from fluctuations in the rate of exchange. In contrast to currency future, forward exchange contracts are for variable amounts and time periods and are transacted through banks and exchange houses.