What are currency forwards?

Unlike listed currency futures and options contracts, currency forwards don't require up-front payments when used by large corporations and banks. Determining a currency forward rate depends on interest rate differentials for the currency pair in question.

What is a forward rate agreement?

Related Terms. Forward rate agreements (FRA) are over-the-counter contracts between parties that determine the rate of interest to be paid on an agreed upon date in the future. An outright forward, or currency forward, is a currency contract that locks in the exchange rate and a delivery date beyond the spot value date.

What is an outright forward?

An outright forward, or currency forward, is a currency contract that locks in the exchange rate and a delivery date beyond the spot value date. Forward rate agreements (FRA) are over-the-counter contracts between parties that determine the rate of interest to be paid on an agreed upon date in the future.

What is the one-year forward rate?

The one-year forward rate in this instance is thus US$ = C$1.0655. Note that because the Canadian dollar has a higher interest rate than the US dollar, it trades at a forward discount to the greenback. As well, the actual spot rate of the Canadian dollar one year from now has no correlation on the one-year forward rate at present.