What is the exchange contract?
Exchange Agreement is an agreement to purchase or sell a foreign currency in a future date with an agreed exchange rate. This rate will apply no matter what the market rate for the currency exchange on the day of the transaction. The exchange agreement for forward can be used to protect against changes to exchange courses or as a form of speculative investment. For example, one bank in the UK offers its small businesses to customers. In this case, the main benefit for the customer is not so much the possibility of disposal to agreement, but rather the certainty of the exchange rate. This may be important for a company that signs an agreement with a foreign customer to be paid in a foreign currency after the future delivery of goods or services. The company can agree with its bank on the exchange agreement, how much money will receive from the customer, they will be value as soon as it is converted to the domestic currency.
on a larger scale can companies that mThey can use a large presence abroad, use an exchange agreement as a form of security. This means protecting from movements on the market that stands against a person's interests by eliminating a smaller investment that pays off in such circumstances. The company that has overseas stores is strengthened if its own country's currency is strengthened and bad if its currency weakens. To ensure this, this may be concluded a pre -exchange contract that leaves it better if the currency weakens. Of course, if the currency is strengthened, it will of course lose some money for a representation contract, but the idea is to create a situation where potential profits or losses are limited to anything that happens and gives the company added security.
It is also possible to have an exchange between two investors. One or both can use it to secure it, but it is also possible that one or both investors simply gambles that they can better predict future exchange rate movements. If one of the two of them is correct, it can complete the currency exchange per do toa suited rate and then immediately change the profit by changing the money back to the prevailing market rate.
In some cases, the exchange agreement may be sold to another investor before it is fulfilled to complete. Meanwhile, the price that the new buyer pays for the right to take over the contract will depend on the movement of the market, and therefore whether it looks more or less likely that the holding of the contract, if payable, will show up profitable. On more complex markets, the contract can change their hands several times with holders who want to make a profit from the purchase and sale of the contract before they hold until it is due.