International Foreign Exchange Master Agreement (IFEMA)

What Is the International Foreign Exchange Master Agreement (IFEMA)?

The International Foreign Exchange Master Agreement (IFEMA) is a master agreement for parties engaged in spot and forward transactions in the foreign exchange (forex) market. A master agreement is a standardized agreement that sets out the terms applying to all such transactions between the parties.

The IFEMA covers all facets of such currency transactions, providing detailed practices for the creation and settlement of a forex contract. In addition to the contract terms, IFEMA explains the consequences of default, force majeure, or other unforeseen circumstances.

Key Takeaways

  • The International Foreign Exchange Master Agreement (IFEMA) is an agreement made by two parties regarding exchanging currency in the foreign exchange (forex) market.
  • The agreement includes all aspects of the forex transactions, including the specific protocols for creating and settling a forex contract.
  • IFEMA also sets out what happens in the case of default, force majeure, or other unforeseen circumstances.
  • IFEMA was published in 1997; in the years since, other Master Agreements have been drawn up for different types of transactions, such as ICOM, for International Currency Market Options.

Understanding IFEMA

The International Foreign Exchange Master Agreement (IFEMA) was published in 1997. It was originally developed by the British Bankers' Association and the Foreign Exchange Committee, an independent advisory committee sponsored by the Federal Reserve Bank of New York. IFEMA was published in 1997 by these two groups in conjunction with the Canadian Foreign Exchange Committee and the Tokyo Foreign Exchange Market Practices Committee.

The parties drawing up the IFEMA recognized that market practices evolve, and IFEMA is intended to represent the best market practice at the time. IFEMA was intended primarily for interdealer trades (that is, where both counterparties to the contract are dealers), but it can be used by non-dealer counterparties if both agree. IFEMA has been designed so that additional warranties, covenants, and other requirements that may be needed for such transactions can easily be added in.

IFEMA was primarily intended to set the standard for interdealer trades, but other parties can use it as the basis of currency trades as well.

Other Master Agreements

At the same time as IFEMA was developed for foreign exchange transactions, other master agreements were developed by the same groupings for different types of transactions, namely ICOM, for International Currency Market Options, and FEOMA, the Foreign Exchange and Options Master Agreement, which essentially combines the IFEMA and ICOM agreements and covers spot and forward foreign exchange transactions and currency options.

This grouping of foreign exchange agreements was later supplemented by the International Foreign Exchange and Currency Option Master Agreement (IFXCO) in 2005, authored by the same four foreign exchange committees as IFEMA.

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  1. Foreign Exchange Committee. "The International Foreign Exchange Master Agreement." Accessed Oct. 24, 2021.

  2. New York Federal Reserve Bank. "FXC Master Agreements." Accessed Oct. 24, 2021.