Minimize your Currency Risk by Using a Forward Contract

What is a forward exchange contract (FEC)?

An FEC is a contract that allows you to lock in a favourable foreign exchange rate for a transfer that that will occur down the line (between 2 – 365 days from the date the FEC is locked in).

What is a forward foreign exchange rate?

This is the exchange rate at which the currency is exchanged for another currency.

What does maturity date mean?

The maturity date is the predetermined future date that has been chosen for settlement. You are not required to pay the full amount owing on your FEC until the maturity date. In some cases a deposit is required.

Why make a forward exchange contract?

Making a forward exchange contract can protect you from fluctuating market rates that occur during the settlement period. Making an FEC is a way of ensuring you benefit from a favourable rate that you lock in yourself.

What is the forward rate?

The forward rate relates to the difference in interest rates between the two currencies and the time to maturity. The forward rate is worked out by regulating the current market rate (the spot rate) for forward points. The forward rate is calculated by adjusting the current market rate (the spot rate) for "forward points", which take into account the difference in interest rates between the two currencies and the time to maturity.Forward points are based on a standard industry formula and are in no way an extra margin charged by NZForex.

For more information on forward exchange contracts, please contact our dealing desks on:

NZ Free Call:

0800 161 868

 

Register online for free to make a forward exchange contract today.

 

 

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