Forward exchange rates
Download
1 / 10

Forward Exchange Rates - PowerPoint PPT Presentation


  • 162 Views
  • Uploaded on

Forward Exchange Rates. Forward Contract. A forward contract in the forex market that locks in the price at which an entity can buy or sell a currency on a future date. Also known as "outright forward currency transaction", "forward outright" or "FX forward". Currency Forward .

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' Forward Exchange Rates' - leda


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

Forward contract
Forward Contract

  • A forward contract in the forex market that locks in the price at which an entity can buy or sell a currency on a future date. Also known as "outright forward currency transaction", "forward outright" or "FX forward".


Currency forward
Currency Forward

  • In currency forward contracts, the contract holders are obligated to buy or sell the currency at a specified price, at a specified quantity and on a specified future date. These contracts cannot be transferred.


Example
Example

  • A U.S. firm is obligated to make a future payment of CHF 100,000 in 60 days. The firm contracts to buy CHF 60 days forward @ 1.7530. The current exchange rate is 1.7799. What is the gain or loss without this contract if the rate after 6 months is 1.6556.


Forward spreads
Forward Spreads

  • A currency is either at a forward premium or a forward discount.

  • Forward discount = Fr – Sr = -ve number

  • Forward Premium = Fr – Sr = +ve number


Annualized spread
Annualized Spread

Forward Premium

or discount

=

[Forward Rate – Spot rate] [ 360 ]

Spot Rate no. of forward days


Swap points
Swap Points

Swap Points = Spot rate x Int. diff x days

360

Forward Rate = Spot rate + Swap points


Interest rate parity
Interest Rate Parity

Interest differential ≈ forward differential

{Rd – Rf} = [Forward Rate – Spot rate]

Spot Rate

Forward = 1+Rd

Spot 1+Rf


Discounting
Discounting

Discounted rate = Forward Rate

1 + i/365 * days



ad