DEFINITION
Foreign Exchange Forward Contract

"Foreign exchange forward contract": A transaction which solely involves the exchange of two different currencies: (i) on a specific future date (ii) at a fixed foreign exchange rate which is pre-agreed at the outset of the contract. Foreign exchange forward contracts are used - among other purposes - for hedging forward foreign exchange exposures. For example known or likely future currency receivables and payables. They are priced by adjusting the spot foreign exchange rate to reflect the interest rate differential between the two currencies involved for the forward period. Also known as a Forward foreign exchange contract, or a Foreign exchange forward.
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