Forward exchange contract is a special type of foreign currency transaction. Forward contracts are agreements between two parties to exchange one currency for another on a specified future date, usually longer than two business days that the rate is agreed today. These contracts always take place on a date after the date that the spot contract settles, and are used to protect the buyer from fluctuations in currency prices.
A Forward Exchange
Contract offers protection against unfavorable changes in foreign
currency values, but no opportunity to benefit if
the
currency moves favorably.