Can Soler, Veïnat de Rocabruna, Camprodon (Girona)

(+34) 646487966

Forward Foreign Exchange Agreement

How does a currency attacker work as a hedging mechanism? Suppose a Canadian export company sells $1 million of goods to a U.S. company and expects to receive the export proceeds within a year. The exporter is concerned that the Canadian dollar has strengthened from its current price (1.0500) in one year, meaning it would receive fewer Canadian dollars per U.S. dollar. The Canadian exporter therefore enters into a futures contract to sell in the future $ 1 million per year at a forward price of 1 US dollar = 1.0655 C$. Suppose that after 3 months, the real exchange rate is 1 EUR = 1.18 USD. The main difficulties with futures contracts are the fact that they are tailor-made transactions designed specifically for two parties. Due to this degree of adaptation, it is difficult for both parties to subcontract the contract to a third party. In addition, the degree of adjustment makes it difficult to compare offers from different banks, so banks tend to incorporate abnormally high fees into these contracts. Finally, an entity may find that the underlying transaction for which a futures contract was concluded has been cancelled and that the contract therefore still needs to be settled. In this context, Treasury staff may enter into a second futures contract, the net effect of which is to offset the first futures contract. Although the bank charges royalties for both contracts, this agreement will fulfill the company`s obligations.

Another problem is that these contracts can only be terminated prematurely by mutual agreement of both parties. The formula for the forward exchange rate is as follows: for an asset that does not offer income, the ratio between the current date (F 0 {displaystyle F_{0}}) and the spot rate (S 0 {displaystyle S_{0}}) A forward foreign exchange transaction is a binding futures contract on the foreign exchange market that sets the exchange rate for buying or selling a currency at a future date. A currency attacker is essentially a customizable hedging tool that doesn`t include an advance. The other great advantage of a futures foreign exchange transaction is that its terms are not standardized and can be adjusted to a specific amount and to each due or delivery time, unlike exchange-traded futures. At Trade Finance Global, our team can not only evaluate and advise your company on monetary solutions, but also offer the most appropriate financing mechanism, in collaboration with experienced monetary experts and financiers, to fill the gap in your supply chain and help you exchange money in different currencies. A futures contract is concluded between a Trade Finance Global partner and your company. A futures contract is also called a foreign exchange transaction (FEC). The acomphe allows you to maintain your position on the futures contract at the agreed exchange rate of the futures contract. .

. .