Forward Contract

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Forward Contract:
Secure an Exchange Rate

Forward contracts, are a simple risk management solution that allows you to secure an exchange rate today, but for settlement at a specific date in the future. The exchange rate is secure on the day that you come to an agreement, fixing the buy and sell amount, as well as the date on which the contract will mature. If you want to protect your foreign currency exposure from volatility then FX forwards is an effective hedging tool when it comes to future payments.

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Types:
Forward Contract

There are different types of forward contracts available. The following contract types can be ideal for certain situations, but you should ensure you speak with a specialist, such as NewbridgeFX, who can explain what the best option is for your particular situation.

Fixed forward contracts

Makes it possible to exchange one currency for another on a fixed date in the future. You secure the exchange rate today, and settle the contract (i.e. transfer your money), on a specified date in the future.

Open, flexible, or variable FX forwards

Makes it possible to exchange currencies, and secure an exchange rate today for settlement on a specified date in the future. Yet with these options, you would also be able to draw-down and use some, or all, of the contract before the original settlement date. This is useful if you may need to send funds, or have access to the funds, before the agreed future date.

Non-deliverable, time options & window forward contracts

There are other types of FX forwards such as NDF’s (non-deliverable forwards), Time Options, and Window contracts, which are less common but may be suitable for you. Speak to NewbridgeFX for further information.

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Case Study:
FX Forward

A company buying goods from a supplier in 6 months time.

XYZ Ltd forecasts that they will be buying goods from their supplier in 6 months’ time. The value of the purchased goods is $100,000 USD. The forward contract exchange rate for GBP/USD of 1.30 meant the cost to the company was £76,923 GBP. The company decided to secure this specific price, budget for the fixed cost of the goods, and settle the contract (i.e. transfer the money) on the agreed settlement date in 6 months’ time.

The alternative would have been to sell GBP and buy the USD at the spot rate in the future, if the spot rate at that time moved to a rate of 1.28 (GBP/USD) the goods would cost the company £78,125, which is an extra cost of £1,202 GBP. This shows how crucial it can be to take advantage of a forward contract, especially from a budgeting perspective.

Despite this example showing the negative impact of currency movements, it is also worth considering how the market could alter in the company’s favour and so, the $100,000 USD could cost less. Yet, to budget effectively and manage cash flow, the company did not want to take the risk and preferred the option of securing the rate, and the buy and sell amounts, affording peace of mind that the cost would not change.

FAQ:
Forward Contract

Products:
Manage Risk

NewbridgeFX offers a specialist service in the deliverable foreign exchange market, promoting a range of products and services, available online or over the phone. Our products have been designed to meet the needs of our clients. A lot of these products are ways for businesses, and individuals, to manage and mitigate currency risk, and are used frequently during times of increased volatility. Alongside up to date foreign exchange related market news, which works in tandem with our range of products. 

Spot Contract

Lock in an exchange rate for immediate onward settlement. Funds can be received the same day.

Forward Contract

Lock in an exchange rate today, but for settlement at a later date that suits you, up to 12 months in the future.

Market Order

We monitor the markets real time and take action to trade between currencies when your desired rate is achieved.

Rate Alerts

Set an alert for phone or email notification when an exchange rate has be achieved to take advantage at the best time.

Benefits:
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Receive funds from your customers in to your own named collection account, using one account number for all currencies, or a local in-country account number still in your company name.

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Hold multiple currencies and access balance information in supported currencies. Receive, convert, send and move money between your multi-currency accounts without making payments.

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