FORWARD CONTRACTS

FORWARDS

A forward contract is the most common hedging tool for companies with foreign exchange exposure and risk. It is a contractual obligation to buy or sell a fixed amount of a foreign currency at a specified rate for settlement on a predetermined date, or within a predetermined time period. Thus, a forward contract provides protection against adverse currency fluctuations, mitigating your exposure to market uncertainty and volatility.

Forward Contracts serve many purposes. They:

• protect your business from the risks associated with fluctuating exchange rates
• allow you to lock in an exchange rate today on payments or receivables you are expecting in the future; minimizing earnings volatility, and allowing you to manage to a budget rate and preserve profit margins

Forwards present companies with flexibility when managing risk exposures. Your company may gain additional forward flexibility and be able to: 1) Close out Forward Contracts at earlier dates than expiry, and 2) Rollover the Forward Contract to later than the expiry date. This flexibility is achieved through adjusting the original terms/value of the forward by the market rates. Therefore, to gain additional flexibility, costs may be associated with such adjustments.

Currency House also provides and administers the use of Non-Deliverable Forwards (NDFs). An NDF is a “net cash settlement” forward FX contract with no physical exchange of currencies.The difference between a normal forward and an NDF is that on settlement date, the profit or loss from an NDF is adjusted between the two counterparties based on the difference between the contract's NDF rate and the prevailing spot FX rate on an agreed notional amount in a major base currency, which is typically the U.S. dollar.

 Forward Contracts can manage exposures between your local currency and a foreign currency or between two foreign currencies. Forward Contracts are often used by importers and exporters and by foreign investors.