Forward Contracts

Fix exchange rates for future certainty.

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What is a Forward Contract?

A forward contract is a financial agreement to buy or sell a specific amount of currency at a fixed exchange rate on a future date. It allows businesses to lock in a rate today for settlement later, protecting against adverse currency fluctuations.

Types of Forward Contracts

Options include fixed-date forwards, window forwards (flexible settlement within a period), and non-deliverable forwards for restricted currencies. Businesses can choose between outright forwards or flexible variations depending on cash flow needs.

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Cash flow gaps, purchasing stock, funding expansion, managing seasonal fluctuations, supporting international trade, or other.

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Benefits of Forward Contracts

They provide certainty by eliminating exchange rate risk on future payments or receipts. This makes budgeting more accurate and shields profit margins from currency volatility.

Commonly used by importers with future supplier payments in foreign currencies, exporters expecting overseas revenues, and companies investing abroad with predictable costs.

Things You Need to Know

While they protect against unfavourable movements, forward contracts also mean missing out on beneficial rate changes. They may require credit approval or margin deposits with the bank.

FAQs

How long can a forward contract last?

Typically up to 12 months, though longer terms are available.

Can I cancel a forward contract?

Yes, but it usually incurs costs.

Do I need to know exact amounts?

Yes, contracts are usually for a fixed currency sum.

Is there a cost to set up?

Often no upfront fee, but a margin may apply.

Who offers forward contracts?

Banks, brokers, and specialist FX providers.

Disclaimer: Compare Business Funding helps UK firms find the right finance credit broker for access to business finance. Compare finds credit brokers, not lenders. Any quotes provided are for information purposes only and subject to status and separate lender terms and conditions. Applicants must be aged 18 and over.  Guarantees and Indemnities may be required.  

This website is operated by Spark Finance. Spark Finance Ltd (Registered office - 18 John Stow House, London, England, EC3A 7JB, Registered Number 10128297) helps UK firms access business finance. Spark is a credit broker, not a lender. Any quotes provided are for information purposes only and subject to status and separate lender terms and conditions. Applicants must be aged 18 and over.  Guarantees and Indemnities may be required.  Spark Finance may receive commission from lenders  which may vary depending on the lender, product, or other permissible factors. The nature of any commission model will be confirmed to you before you proceed.

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