Forward Exchange Rate Contracts

A forward exchange rate contract is a way of insuring your contracts (such as buying a property) against fluctuations in the exchange rate.

For example, if you agree to buy a house for Euros 20,000 an appreciation in the Euro, could increase the Pound Sterling value by a considerable amount.

The way forward exchange rates work.

On a particular day, there will be a spot price for future contracts between the Euro and Pound. If you buy this contract then you are able to exchange money at a specified day for this particular price.

It means that you can have certainty that you will be able to buy foreign exchange at a certain price. It enables you to have insulation against rapid fluctuations.

This is an example of a bank offering forward exchange contracts

By on April 23rd, 2008