Outright Forward

AAA

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.

RELATED TERMS
  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Forward Contract

    A customized contract between two parties to buy or sell an asset ...
  3. Currency Forward

    A binding contract in the foreign exchange market that locks ...
  4. Currency Futures

    A transferable futures contract that specifies the price at which ...
  5. Forex - FX

    The market in which currencies are traded. The forex market is ...
  6. ISDA Master Agreement

    A standard agreement used in over-the-counter derivatives transactions.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. Why is Game Theory useful in business?

    Game theory was once hailed as a revolutionary interdisciplinary phenomenon bringing together psychology, mathematics, philosophy ... Read Full Answer >>
  6. How did currency trader John Rusnak hide $691 million in losses before being caught ...

    In 1993, Allfirst Bank hired a currency trader to shift the bank's forex (FX) operations from a merely hedging endeavor to ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Solutions For Concentrated Positions

    Investopedia explains various tactics for divesting your overexposure to any one stock.
  2. Options & Futures

    A Primer On The Forex Market

    Moving from equities to currencies requires you to adjust how you interpret quotes, margin, spreads and rollovers.
  3. Forex Education

    Getting Started In Foreign Exchange Futures

    Learn how these futures are used for hedging and speculating, and how they are different from traditional futures.
  4. Options & Futures

    An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.
  5. Forex Education

    Top 7 Questions About Currency Trading Answered

    Whether you're puzzled by pips or curious about carry trades, your queries are answered here.
  6. Investing Basics

    What is a Forward Contract?

    A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.
  7. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  8. Investing Basics

    A Fresh Look At The Financial Markets

    Different markets provide unique opportunities and risks for investors. Find out more here.
  9. Options & Futures

    Why Forward Contracts Are The Foundation Of All Derivatives

    This article expands on the complex structure of derivatives by explaining how an investor can assess interest rate parity and implement covered interest arbitrage by using a currency forward ...
  10. Fundamental Analysis

    Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center