Forwards

A Forward Contract allows you to lock in an exchange rate today on payments or receivables you are expecting in the future. By locking in a rate and removing the uncertainty of the currency fluctuations, you can minimize earnings volatility, manage to a budget rate and preserve profit margins.

What does a Forward Contract Cost?

The exchange rate on a Forward Contract is a combination of the prevailing spot rate for the relevant currency, adjusted by the forward margin. The forward margin may be added (a “premium”) or subtracted (a “discount”) from the spot rate. Forward margins reflect the interest rate differential between two currencies and can be considered the cost of covering forward exchange risk.

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