Everything You Need To Know About Forward Contracts

In times of market volatility, Forward Contracts can be beneficial to use as part of an FX hedging strategy to manage currency risk.

What is a Forward Contract?

Forward Contracts are a contractual agreement to buy or sell a pre-determined amount of currency at a specific rate and time in the future. They are an essential and customizable hedging tool used to lock in favourable rates.

Why should we use Forward Contracts?

Forward Contracts guarantee your position in the market regardless of fluctuations or market conditions.

• Guaranteed cost/rate to protect profit margins
• Flexibility to rollover to a future date or offset if funds are not needed by the original expiry date
• Keeps working capital available

FX Outright Forward

An FX Outright Forward is the most common type of foreign exchange forward contract. It is a contract to buy or sell a pre-determined amount of currency that locks in the exchange rate today for settlement at a specified future delivery date. Protect profit margins by securing a favourable rate today – all without tying up working capital.

Benefits:

• Guaranteed cost protects profit margins
• Can be customized to a specific currency amount and for any maturity up to 12 months
• Flexibility to rollover to a future expiry date or offset if funds are not needed by the original expiry date
• Potentially increase return on company assets

FX Time Options Forward

An FX Time Option Forward allows you to secure the forward rate today between two currencies for a specified time (similar to an FX Outright Forward) with the added flexibility to access funds for settlement either partially or in full in the 90 calendar days prior to expiry. Time Option Forwards are beneficial when you need cash flow certainty and gradual access to those funds. Protect your profit margins by securing a favourable rate today, for delivery in the future – all without tying up working capital

Benefits:

• Guaranteed cost protects profit margins
• Can be customized to a specific currency amount and for any maturity up to 12 months
• Flexibility to rollover to a future expiry date or offset if funds are not needed by the original expiry date
• Potentially increase return on company assets

Non Deliverable Forward (NDF)

A Non-Deliverable Forward (NDF) is a method to hedge exposure in currencies that cannot be physically settled in the domestic currency. It allows the buyer to lock in an exchange rate on any given day, similar to an outright forward, but on the close date the contract is settled in the domestic currency. Typically used when revenues are in a controlled currency you need to bring back domestically.

Benefits:

• Guaranteed rate during term of contract protects profit margins
• Can be customized to your needs
• Wide range of currencies are available
• No physical delivery or exchange of the notional amount

Advantages of using Forward Contracts

Managing risk is a vital part of your business. Our dedicated Account Managers will work with you to assess your current risks, safeguard your profits, and ensure your financial stability, so you can operate with confidence.

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Get the Olympia Advantage. Contact Olympia Currency & Global Payments for all your foreign exchange and international payment needs.  
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