Forward contracts let you agree on a price for a future currency exchange. It's like placing an order now but paying and getting the currency later. This can be helpful if you want to lock in a price and avoid unexpected exchange rate changes.
Questions? We're here to help.
Forward Contracts
Forward contract advantages
How it works
Lock in a beneficial rate for a later date
1
Book your exchange rate and future date
Protection from adverse currency rate changes
2
When the future date arrives, simply send the funds
Achieve more accurate budgeting
3
Your money is delivered
Greater certainty over your cash flow
Forward contract disadvantages
These are binding and cannot be terminated
Potential to miss out on beneficial rate changes
Questions? We're here to help.
What is a forward contract?
A forward contract is an agreement to buy or sell foreign currency at a predetermined exchange rate on a specific future date. This allows you to lock in a rate and protect your business from future exchange rate fluctuations. Monetae offers tailored forward contracts to suit your business needs.
Why would a business need a forward contract?
Businesses typically use forward contracts when they have future foreign currency obligations or receipts and want to eliminate the uncertainty associated with exchange rate fluctuations.
Common scenarios include:
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Importing or exporting goods and services: Businesses can protect their profit margins by locking in the exchange rate for future payments or receipts.
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Making foreign investments: Forward contracts can safeguard against currency fluctuations affecting the value of overseas investments.
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Repatriating profits: Businesses can lock in a favourable exchange rate for repatriating profits earned in foreign currencies.
What are the benefits of a forward contract?
Forward contracts give you certainty by locking in a rate for future payments, protecting your business from adverse currency movements. This makes budgeting easier as you know exactly what you'll pay when the contract matures, reducing your exposure to market volatility.
What's the difference between a forward and a spot exchange rate?
A forward exchange rate is set for a future date, allowing you to lock in a price for a later transaction. A spot rate, by contrast, is the current exchange rate for immediate payments. Forward contracts protect against future rate changes, while spot contracts settle at today’s rate.
Why would I need a forward contract?
Forward contracts are ideal when you have an upcoming foreign payment but want to avoid potential currency swings. For example, if you’re buying property overseas in three months, locking in a rate now with a forward contract can safeguard you from any negative shifts in exchange rates during that time.
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