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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RELATED FAQS
  1. How do I calculate a forward rate in Excel?

    You need to have the zero-coupon yield curve information to calculate forward rates, even in Microsoft Excel. Once the spot ... Read Full Answer >>
  2. How valuable is the forward rate as an overall economic indicator?

    Any given forward rate is theoretically equal to its corresponding spot rate plus future expectations. Many investors and ... Read Full Answer >>
  3. How do I convert a spot rate to a forward rate?

    Think of the relationship between spot and forward rates in the same way as the relationship between discounted present value ... Read Full Answer >>
  4. How accurate is the forward rate in predicting interest rates?

    Forward rates are extremely limited predictors of actual interest rates. This isn't particularly surprising, given the multitude ... Read Full Answer >>
  5. What is the difference between a forward rate and a spot rate?

    The forward rate and spot rate are different prices, or quotes, for different contracts. The forward rate is the settlement ... Read Full Answer >>
  6. 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 >>
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