1 / 10

Forward Exchange Rates

Forward Exchange Rates. 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". Currency Forward .

leda
Download Presentation

Forward Exchange Rates

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  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 Spot 1+Rf

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

  10. QUIZ!

More Related