1. Forward Foreign Exchange Contract A forward foreign exchange contract is an agreement to exchange one currency for another on some date in the future at a price set now (forward exchange rate).

2. Forward Exchange Value (FXV) Vs. Spot Exchange Value (SXV) n If FXV > SXV:Forward Premium; n If FXV < SXV :Forward Discount; n If FXV = SXV :Flat (even)

3. In the following examples, is the dollar selling at a premium or discount? n e : $/£ = 1.77 e f :$/£ = 1.78 n $/¥ = 0.004$/¥ = 0.005 n $/DM = 0.40DM/$ = 2.50 n FF/$ = 6.06$/FF = 0.15 n $/SF = 0.51SF/$ = 1.94