1. Forward Exchange Rates

2. Forward Contract A forward contract in the forex market that locks in the price at which an entity can buy or sell a currency on a future date. Also known as "outright forward currency transaction", "forward outright" or "FX forward".

3. Currency Forward In currency forward contracts, the contract holders are obligated to buy or sell the currency at a specified price, at a specified quantity and on a specified future date. These contracts cannot be transferred.

4. Example A U.S. firm is obligated to make a future payment of CHF 100,000 in 60 days. The firm contracts to buy CHF 60 days forward @ 1.7530. The current exchange rate is 1.7799. What is the gain or loss without this contract if the rate after 6 months is 1.6556.

5. Forward Spreads A currency is either at a forward premium or a forward discount. Forward discount = Fr – Sr = -ve number Forward Premium = Fr – Sr = +ve number

6. Annualized Spread Forward Premium or discount = [Forward Rate – Spot rate] [ 360 ] Spot Rate no. of forward days

7. Swap Points Swap Points = Spot rate x Int. diff x days 360 Forward Rate = Spot rate + Swap points

8. Interest Rate Parity Interest differential ≈ forward differential {Rd – Rf} = [Forward Rate – Spot rate] Spot Rate Forward= 1+Rd Spot1+Rf

9. Discounting Discounted rate = Forward Rate 1 + i /365 * days

10. QUIZ!