Forward transaction in foreign exchanges

A financial derivative in which the conclusion and execution of an exchange transaction on the foreign exchange market are separated in time. – The partners agree to buy (sell) a certain amount of foreign currency at the forward rate, which is usually a three-month forward rate. The forward price may deviate upwards or downwards from the daily rate. – If the forward price is higher than the daily rate – also known as the spot rate – this is referred to as a report (premium). – If the forward price is below the daily rate, the difference is called a deport (discount). – The difference between the forward price and the daily rate for foreign exchange, calculated in annual percentages, is the swap rate. – See banking market, currency futures, Herstatt risk, lagging, parallel credit, success rates, swap transactions, interest rate differential. – Cf. Monthly Report of the Deutsche Bundesbank, July 2005, pp. 29 ff. (basic, textbook presentation with formulas and overviews).

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