What is a forward exchange rate?

, also known as a forward rate, is a transfer exchange rate of the price or rate that the seller is listed in the current date and accepted by the buyer at the same date, allowing both parties to start the store. Rather than require payment and delivery at that time, both parties determine the schedule that allows you to fill in the payment and delivery for completion for the specified future date. This arrangement allows both parties to enter transactions that will ultimately benefit both parties.

Sometimes there is confusion between what is a exchange rate and a front exchange rate. It is true that both rates have in terms of prices because they relate to the actual date where the buyer and the seller decide to make a transaction. The difference is in the time frame that is permitted to settle this transaction. For example, if the buyer and the seller agree to the price and date of delivery, which is within two working days of the start of the trade, then TOS is considered a point exchange. If the two parties were agreedT on the fact that 30 calendar days from the date on which the stock exchange is launched, the rate would be considered a exchange rate.

One of the advantages for the buyer of the entry into the store involving the transfer exchange rate is the ability to lock the lower price of today, but to postpone the payment until the value of the acquired assets increased. For example, the buyer can purchase many shares for $ 10 per share for a share, takeover agreement and pay for these shares on a specific day in the next calendar month. Assuming that these shares appreciate the value of $ 15 per share in the meantime, the buyer can sell shares for a higher rate and deliver them after receipt and pay the original seller.

While the strategy for passing a exchange rate is often a great way to generate additional income from purchasing and sales of shares, there is a certain degree of risk. If the shares do not perform as planned, there is always a chance that the market value of the shares will fall below the exchange rate agreed between the buyer and the seller. If this happens, the buyer is still often obliged to agree to recognize the agreement and pay for the shares on the date and will have a certain amount of loss. For this reason, it is always good to consider all relevant factors in the projection of the future movement of shares prices and take into account it before locking forward on the exchange rate for buying any type of asset, whether stock or even monetary stores.