Forward exchange market
 |
This article is an orphan, as few or no other articles link to it. Please introduce links to this page from related articles; suggestions may be available. (December 2010) |
 |
This article does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (December 2009) |
The forward exchange market is a market for contracts that ensure the future delivery of a foreign currency at a specified exchange rate. The price of a forward contract is known as the forward rate.
[edit] Forward rates
Forward rates are usually negotiated for delivery one month, three months, or one year after the date of the contract's creation. They usually differ from the spot rate and from each other.
[edit] What determines the forward rate?
If there is no government intervention on the value of a currency, the forward market will be governed by supply and demand. In such a case it is possible that the forward rate provides information on the future spot rate, but ultimately uncertain. What is certain is that the forward rates reflect the expectations forward market participants have on the changes of the spot rate during the specified interval. If the forward rate and the spot rate are the same, forward market participants do not expect much change in the price of a currency over the given period of time.
Forward contracts can be used to hedge or cover exposure to foreign exchange risk.
 |
This economics or finance-related article is a stub. You can help Wikipedia by expanding it. |
