What is a forward contract?
A forward contract is a hedging product that allows you to secure an exchange rate over a set period of time on a predetermined volume of currency.
With WorldFirst, a forward contract can be entered to facilitate payments for identifiable goods or services.
You will be able to lock in an exchange rate for up to 24 months.
Why hedge using a forward contract?
Locking in an exchange rate with a forward contract means you know exactly what exchange rate you’re getting, for a set time. This helps you predict cash flow so you can be smarter, more accurate and more competitive with your forward planning.
What can happen if I don't hedge?
Without locking in a fixed rate (hedging), adverse market fluctuations could lead to losses for your business and result in increased prices for your products and services.
Five things to consider when hedging
During a forward contract, if the market rates move against you, you won’t lose out because your rate is secured. However, if rates move significantly against you, you may need to pay a margin call.
You won’t benefit if a currency moves in your favour during your forward contract, though you may be able to take advantage of market movement with a spot contract.
You must consider your risk appetite and evaluate your budget when pre-booking foreign currency. It may be worthwhile considering other strategies if you are unsure of your requirements.
You can enter a forward contract exchange with WorldFirst in order to pay an upcoming invoice in a foreign currency, or in preparation of an upcoming purchase in a foreign currency, but would not be able to trade forwards for speculative purposes.
- There is an initial deposit requirement associated with forward contracts, usually from 5 to 10 percent depending on the length of your contract. Please reach out to your relationship manager who can look to see whether you are eligible for a credit facility to help cover this.
- In New Zealand Forward Contracts are only available to wholesale customers.
How to book a forward contract
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