Tuesday, December 12

What is Currency Forwards

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Exchange rate is also changing second by second. It is difficult to predict the foreign exchange. The business actor also difficult to predict the exchange rate especially company that buy or sell product to outside. They must need exchange to buy the product because some country does not accept the foreign country, they want receive their currency. Therefore people should provide currency for buying something.

The company usually pays the product credit. They will send the foreign exchange at certain time. To prevent from currency risk (the increasing foreign exchange), they buy foreign exchange at forward rate. They buy the contract to buy foreign exchange that is called currency forwards. The contracts are made over the counter so the company can design principal amount in the trade, the delivery date, and the currencies.

It must be difficult to find the company or bank that offers the contract if we design the contract too strictly. The company should be flexible to design the contract. Some bank may not provide contract for infamous currency from infamous country. The bank also offers contract for specific term, for example, three months, half year, and year. We will be difficult to make contract for two months, five months, and others. Bank also offers specific amount, for example thousand dollars, 50000 dollars, and more. 

Beside the businessman, a speculator often uses this contract to gain profit.

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