The term outrights is used in the forex (FX) market to describe a type of transaction where two parties agree to buy or sell a given amount of currency at a predetermined rate at some point in the future. This type of transaction is also referred to as a forward outright, an FX forward or a currency forward. A forward outright transaction is mainly used by parties seeking to hedge against adverse currency fluctuations or to stabilize a stream of future cash flows by taking advantage of the current rate.
For example, let's say a U.S. company known as ZXY imports most of its materials from the U.K. every six months and its executives believe that the value of the domestic currency is going to decrease. If the domestic currency's value does decrease, it will take more U.S. dollars to buy the same amount of materials. In this case, the company could take advantage of a forward outright transaction, allowing the two parties to agree on a certain exchange rate today, and when ZXY needs to purchase materials in six months, it will not be affected by adverse changes in the exchange rate.
An outright rate differs from the rate used in the spot market because the parties factor in characteristics such as the volatility of the currencies and their mutual opinion of where they think the exchange rate will be in the future. The disadvantage of using a forward outright is that the exchange rate could move in what would have been a favorable direction had the hedge not been implemented. In this case, the investor doesn't stand to gain from favorable changes in the exchange rate because they agreed to pay a predetermined exchange rate irregardless of the rate when the investor makes the purchase.