Currency Forward
a.k.a. Forward, Forwards, Forward contract, FX forward
A private agreement to exchange currencies at a fixed rate on a set date in the future.
In plain English
A private agreement to exchange currencies at a fixed rate on a set date in the future.
A currency forward locks in today a rate for an exchange that happens later. A company that must pay a supplier in euros in six months can fix the price now and stop worrying about the exchange rate.
The forward rate is not a forecast. It is the spot rate adjusted for the interest rate difference between the two currencies, a link known as interest rate parity. Forwards are customised and traded over the counter, unlike standardised futures.
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