Currency forward is a one of the products offered by foreign exchange companies. Currency forward is an agreement done between two parties keeping forex company as a mediator and authority. Here the exchange rate of future delivery or transaction is prefixed. The prefixed rate is known as forward exchange rate. Companies do not choose currency forward with an intention to make money but they want to protect their transaction from the uncertainty of forex market. When businesses have to transfer large amount abroad, they seek the safety of fund. Also, every business transaction needs to be certain in its value. Forex rates are highly volatile. If the transaction is going to be held after few months of the deal, the buyer will not be able to calculate exact cost. Thus, signing currency forward contract they know the exact payment they have to make.
Forward exchange rates offered by various foreign exchange services may vary thus traders or investors must research well and compare the rates. None of the parties can quit the contract before executing it. The time to conduct transaction is locked in the agreement which can be any period within a year. There are businesses who often make transactions in millions and billions. For such companies or financial institutes, even a decimal fraction change in exchange rate makes a difference of lacs and millions. When businesses opt for forward exchange rates, they close the doors of possibilities for positive market movements and gains. This hedging service doesn't come for free, foreign exchange firms or brokers do charge some interest amount based on the period you have locked for fixed exchange rate and spot(current) rate of that particular currencies in market. Shopping around for the best forward exchange rate can help you save a bit of your hard earned cash.
Forward exchange rates offered by various foreign exchange services may vary thus traders or investors must research well and compare the rates. None of the parties can quit the contract before executing it. The time to conduct transaction is locked in the agreement which can be any period within a year. There are businesses who often make transactions in millions and billions. For such companies or financial institutes, even a decimal fraction change in exchange rate makes a difference of lacs and millions. When businesses opt for forward exchange rates, they close the doors of possibilities for positive market movements and gains. This hedging service doesn't come for free, foreign exchange firms or brokers do charge some interest amount based on the period you have locked for fixed exchange rate and spot(current) rate of that particular currencies in market. Shopping around for the best forward exchange rate can help you save a bit of your hard earned cash.
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