Forward exchange


 

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Forward exchange

A type of foreign exchange transaction whereby a contract is made to exchange one currency for another at a fixed date in the future at a specified exchange rate. By buying or selling forward exchange, business protect themselves against a decrease in the value of a currency they plan to sell at a future date.



Forward exchange

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The risk that a long or short position in a foreign currency might have to be closed out at a loss due to an adverse movement in exchange rates.


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Nominal exchange rate

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The actual exchange rate at which currencies are exchanged on an exchange market. Contrasts with real exchange rate.


Expectations theory of forward exchange rates

Expectations theory of forward exchange rates

A theory of foreign exchange rates that states that the expected future spot foreign exchange rate t periods from now equals the current t-period forward exchange rate.


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stock exchange
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