1 Foreign Exchange FOREX. 2 24: Forward Contract (or Currency Contract) Entering into a Forward Contract. Entering into a Forward Contract. No Outflow.

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1 Foreign Exchange FOREX

2 24: Forward Contract (or Currency Contract) Entering into a Forward Contract. Entering into a Forward Contract. No Outflow takes place at t=0 except Minimum Transaction Charges. No Outflow takes place at t=0 except Minimum Transaction Charges. Rate is agreed today for settlement at Future Date. Rate is agreed today for settlement at Future Date. Two Types of Forward Contract Outright Forward Contract Or Forward Contract Option Forward Contract 1.Three Information is required for calculating Forward rate for both product : SPOT Rate, SWAP Point and Exchange Margin 2.Hedge Exporter Sell FC today on Forward Basis Strategy Importer Buy FC today on Forward Basis

3 Outright Forward Contract Contract Period 1 Year Contract Period 1 Year t=0 t=1 Date of Booking Maturity Date or Expiry Date Settlement is allowed only at t=1 (that means on particular date which is always expiry date). If on last date settlement is not made penalty is imposed this is the only drawback to overcome which Option Forward Contract is made.

4 Option Forward Contract Contract Period Contract Period Option Period Option Period t=0 t=1 t=2 t=0 t=1 t=2 Date of Booking Expiry Date Date of Booking Expiry Date 1. This Product allow to settle at any day between t=1 and t=2 (that means we have range of dates rather than particular date) 2. Maximum option period as per FEDAI is One month

5 Pricing of Forward Contract Forward ContractOption Forward Contract Spot Rate t=0 t=0 SWAP Point t=0 to t=1 Normal Treatment t=0 to t=1 SWAP Point Option Period t=1 to t=2 Exchange Margin Foreign Currency Premium Foreign Currency Discount Exporter NOT be Passed Will be Passed Importer Will be Passed NOT be Passed As uncertainty is involved between t=1 to t=2 therefore bank will not give profit to customer but loss will be passed on.

6 Early Delivery, Extension & Cancellation Extention : Entire amount of contract is extended for settlement on future date. Rollover : Partial Extention Part amount is settled on due date and balance is extended for settlement for future date. Part amount is settled on due date and balance is extended for settlement for future date. Cancellation : Settlement id cancelled.

7 Extension/ Rollover Cancellation of existing Contract Simultaneous re-booking of fresh Contract Follow normal procedure for forward contract booking Forward Purchase Forward Sale Interpreted with respect to bank Appropriate Selling Rate by IB Market Appropriate Buying Rate by IB Market Cancellation Rate