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. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
RELATED FAQS
  1. Over what time period should I be looking at the forward rate?

    Your target time horizon for forward rates depend on your own investment horizon. If you have a specific forward contract, ... Read Full Answer >>
  2. What kinds of derivatives are types of forward commitments?

    A derivative is a type of security in which the price of the security is dependent on underlying assets. A derivative could ... Read Full Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
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. Fundamental Analysis

    What is a Forward Rate?

    Forward rate is used in both bond and currency trading to represent the current expectations of future bond interest rates or currency exchange rates.
  7. Investing Basics

    Understanding Non-Deliverable Forward (NDF)

    A foreign exchange hedging strategy where the parties agree to settle the profit or loss in a foreign currency futures contract before the expiration date.
  8. 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.
  9. 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.
  10. Investing Basics

    A Fresh Look At The Financial Markets

    Different markets provide unique opportunities and risks for investors. Find out more here.

You May Also Like

Hot Definitions
  1. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  3. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  4. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  5. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!