Forward Contract

A forward contract is a binding obligation to buy or sell a certain amount of foreign currency at a pre-agreed rate of exchange, on a certain future date. This will guarantee the rate you will recieve on the value date of the forward.

A forward contract is the simplest method of covering exchange risk because it locks in an exchange rate. This strategy overcomes one of the problems that you can experience when importing or exporting in foreign currency, as you can now budget at a guaranteed rate of exchange.

It can be possible to build in some flexibility to allow the purchase or sale of the currency between two pre-defined dates rather than a single maturity date. See - Option Dated Forward

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