What are Forward Contracts?

A forward contract is a contract in which the two parties agree to buy or sell a certain amount of a certain type of financial asset at a certain certain time in the future. The contract stipulates the subject matter of the transaction, the validity period and the execution price at the time of delivery, which are a kind of hedging tool. It is an agreement that must be fulfilled. Forward contracts mainly include forward interest rate agreements, forward foreign exchange contracts, and forward stock contracts. A forward contract is a cash transaction in which the buyer and seller reach an agreement to deliver a certain quality and quantity of goods in a specific future period. The price can be determined in advance or at the time of delivery. Forward contracts are over-the-counter transactions, and both parties to the transaction are at risk. If the spot price is lower than the forward price, the market condition is described as a forward market or a premium. If the spot price is higher than the forward price, the market condition is described as a reverse market or spread. ^[1]

Forward contract

Forward contract: It is a contract signed by the buyer and the seller according to the special needs of the buyer and the seller.

A forward contract is an agreement between the two parties that agrees to exchange something at a predetermined price in the future.

In a forward contract, the party that agrees to buy assets at a certain price in the future is called the long position party, and the party that agrees to sell assets at a certain price in the future in the future is Called the short position party.

A forward contract is a spot contract agreement in which buyers and sellers purchase and sell assets at the agreed price on the day within a specified period of time. The buyer buys on the assumption that the relevant asset will appreciate in the future, while the seller assumes that the value of the relevant asset will fall, and the price of the agreement signed is called the delivery price. This price is the same as

Forward contract : An agreement between the two parties in the transaction to buy and sell assets of a specific quantity and quality at a specific price in the future. Forward contracts enable buyers and sellers of assets to remove uncertainty about future asset transactions.

Forward contracts are a type that arose in the early 1980s

In principle, calculation

Forward contracts with

Whether or not this risk is worth considering depends, of course, on personal choice and the actual environment. Even if today's volatile market shows no signs of weakening, many companies have chosen a certain degree of exchange rate determination to prevent unexpected and disruptive volatility.

Obviously, by using the forward contract to fix the exchange rate of the company's international balance of payments, the finance will be in a better position to manage the expenditure of the company. They will have a predetermined exchange rate on a specific amount of currency, making them better prepared to deal with unforeseen market disturbances and other external changes. In times of uncertainty, companies can pay attention to managing as many financial matters as they choose. The bottom line is to fix the exchange rate in advance to eliminate volatility risks.