Buying a house overseas and like the exchange rate where it’s at right now? A forward foreign exchange contract can lock in today’s rate, for settlement down the track.
If you need to transfer money on a set date in the future, a forward foreign exchange contract can:
The rate at which you exchange currencies is called the forward foreign exchange rate.
The nominated date for settlement is referred to as the maturity date – you do not need to pay the entire amount of money owing until the maturity date.
How does it work?
To work out the forward rate the system adjusts the spot rate for forward points. The difference in interest rates between the two currencies and the time to maturity is then calculated. A standard industry formula is employed when calculating forward points.
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