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Forward Foreign Exchange Contract

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). Forward Exchange Value (FXV) Vs. Spot Exchange Value (SXV). If FXV > SXV: Forward Premium;

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Forward Foreign Exchange Contract

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  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) • If FXV > SXV: Forward Premium; • If FXV < SXV : Forward Discount; • If FXV = SXV : Flat (even)

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

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