In the currency markets, forward contracts are transacted over the counter like through the bank. There are two participants in a forward contract, these are hedgers and speculators. Hedgers don’t typically look for a profit however rather look to stabilize the revenues or costs of their business operations. Their gains or losses are normally offset to a point by a corresponding loss or gain in the market for the underlying asset. Speculators are typically are not interested in taking possession of the underlying assets. They basically place bets on which approach prices will go. Forward contracts tend to woo hedgers than speculators.
Forward exchange cover facility is available to Importers/Exporters to mitigate exchange risks on under document credits and Import/Export Contract. Importer/Exporter can enter into Forward Contract for sale/purchase of foreign currencies with the Bank at any time from the opening/registration of the contract subject that the period of the forward exchange cover should not exceed the validity of the contract.
Forwards specify a trade between two counter-parties. There is a commitment to deliver an asset (this is the seller), at a specified forward price. There is a commitment to take delivery of an asset (this is the buyer), at a specified forward price. At delivery, cash is exchanged for the asset. In other words in a forward contract, the purchaser and its counterparty are obligated to trade a security or other asset at a specified date in the future. A forward rate is calculated by viewing the interest rate difference between the two currencies concerned. In the forward market, the currency of a nation with lower interest rates than our nations will trade at a “premium”. The currency of a nation with higher rates than ours will trade at a “discount”.
A Forward Contract is a non-standardized contract among the two parties. These contracts are very similar to futures contracts, the only difference is they are not exchange-traded or defined on standardized assets. A forward contract is an over the counter instrument which is not traded on a centralized exchange. The party agreeing to buy the underlying asset in the future is a long position, whereas the party agreeing to sell the asset in the future assumes a short position.
The advantages of the forward contract are as follows;
Forex markets are extremely volatile and thereby unpredictable. Managing forex risk requires regular monitoring of the forex markets and a lot of patience. The forex advisory team at Myforexeye contains a heap of expertise in forex risk management. With Myforexeye, firms manage their risk more efficiently.
Read more about Foreign Exchange
07 Jun 2019 05:12 PM
The trade war is a situation in which countries involved damage each other’s trade by imposing tariffs on imports with the broad intention of saving its own industries and creating job opportunities for its citizen.
31 May 2019 02:55 PM
Foreign Services from reliable service providers like that of Myforexeye include a range of solution that is aimed to help businesses and individual traders to better their trading every day by analyzing the market’s movements.
27 May 2019 05:45 PM
Enterprises who are into the import and export business strive to derive financial flexibility to boost their purchasing power. With efficient export and import financing strategies one can help businesses face its financial challenges.
24 May 2019 03:19 PM
1. Foreign exchange as the term says is an exchange of foreign currency. Exchange of one country’s currency against another country’s is done in the foreign exchange or forex market.
23 May 2019 12:04 PM
Foreign exchange depends on the value of the currency. And, as far as the valuation of currency is concerned, it again depends on a number of factors such as - trade, investment, tourism, and geopolitical risk. The foreign exchange market also repres
21 May 2019 05:13 PM
A letter of credit provides an irrevocable guarantee to the seller that provided the goods and/or services are delivered to the buyer according to contractual terms and with the required documents, it will be paid by the bank that issued letter of cr