Description

• All deals that have to be delivered over two business days from transaction date are considered as Forward or Outright contracts.
• The forward rate is composed of the spot rate plus or minus the interest rate differential between two currencies that is expressed in points. These forward points are subject to move, upward or downward, according to the interest rate differential.
• In addition to the flexibility of settling future payments, Forwards are more appropriate than spots, if a company has a strong directional view of expected movements in exchange rates. But certainty is rare and hedging entirely with forwards may leave a company locked into unfavorable exchange rates.
• A Swap contract is defined as the simultaneous purchase and sale of identical amounts of a currency for different dates. In other words, it is a combination of a spot transaction and a forward with reverse directions.