Outright Forward

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DEFINITION of 'Outright Forward'

A forward currency contract with a locked-in exchange rate and delivery date. An outright forward contract allows an investor to buy or sell a currency on a specific date or within a range of dates. Foreign exchange forward contracts function in a very similar fashion to standard forward contracts.

INVESTOPEDIA EXPLAINS 'Outright Forward'

Companies that make large purchases from foreign business can use outright forward contracts to cover costs. For example, a French company that buys materials from a Chinese supplier may be required to provide payment for half of the total value of the payment now and the other half in six months. The first payment can be covered with a spot trade, but in order to reduce currency risk exposure, the French company locks in the exchange rate with an outright forward. If the company still requires the currency in six months, it can purchase it at the agreed-upon rate.

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  1. What is the difference between a forward rate and a spot rate?

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  2. Why is the initial value of a forward contract set to zero?

    Forward contracts are buy/sell agreements that specify the exchange of a specific asset and on a specific future date but ... Read Full Answer >>
  3. How are forward contracts regulated in the United States?

    Forward contracts are not regulated like most other derivatives such as futures or options. Compared to other financial instruments, ... Read Full Answer >>
  4. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  5. What does "outrights" mean in the context of the FX market?

    The term "outrights" is used in the forex (FX) market to describe a type of transaction in which two parties agree to buy ... Read Full Answer >>
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