"Financial House Logos-TM" JSC

Forward Exchange Contracts

Forward Exchange Contract – Financial product which with the client signs a contract for purchase / sale of foreign currency at a future date and at exchange rate, fixed at the time of signing the contract.
Financial product for purchase or sale of currency based on a pre-agreed exchange rate, amount and date in the future. The client enters into an irrevocable commitment to execute the deal.

Characteristic:

  • Fixed future exchange rate.
  • Predictability of the cash flows from the transactions in foreign currencies by fixing the future exchange rate.
  • Flexible terms of the contract, pursuant to the specific needs of the client.
  • Agreement on the date of performance of the obligation.
  • The deal has the limit to deal exclusively at the pre-arranged date.

Example:

A client has a 3-month payments of $ 1,000,000, ie after 3 months he will need to buy dollars against the sale of euro. A possible decline of the euro will increase the cost of payments, as this means he will has to buy the dollars at more expensive price. Through the forward the client fixes today the exchange rate at which he will sell the euro after three months, the transaction is irrevocable. If the current exchange rate EUR / USD hypothetically is at 1.4100 *, the forward rate for the sale of euro after 3 months is fixed at 1.4030 *, depending on the forward points (the number of basis points to be added or subtracted from the current spot exchange rate to obtain the forward rate) at the time of the transaction and the prevailing market conditions. The client sells euro against dollars at 1.4030 *, regardless of what will be the exchange rate on the maturity date. If at the maturity date the euro/dollar exchange rate falls, for example to 1.3900 *, the client will have a positive result. If at the maturity date the euro / dollar exchange rate rises, for example to 1.4200 *, the client will have a negative result.


* All interest and currency exchange rates, terms and premiums are indicative and they do not binding on "Financial House Logos-TM" JSC.