Forward Contracts
A frequently used and effective way of managing your foreign currency exposure is with a Forward Contract. This is a very helpful FX hedging tool used in corporate budgeting to assist with cash flow forecasting when conducting international currency transactions.
Many of our clients are aware of their future foreign exchange needs today and want to protect themselves against future adverse price fluctuations. Forward contracts allow you to "lock in" your FX price at a rate today so that you will know exactly what your foreign payable or receivable will be in the future thereby eliminating the risk of trying to predict what your exchange rate might be at a future date. A forward contract involves the actual purchase or sale of a foreign currency at an exchange rate established today but with payment, delivery and settlement at a specified future date thereby removing currency price risk. Major currencies can normally by arranged for delivery at any specified date up to a year and sometimes up to three years. Axiom books forward contracts in all major currencies.
For Example: A textile importer knows that he needs to purchase $100,000 USD worth of product every month for the next 3 months. Current exchange rates are very favourable for his bottom line. Rather than expose his company to currency risk, he decides to hedge his foreign payables and "lock-in" a current USD/CAD rate of 1.1500 with 3 forward contracts (1 month, 2 month and 3 month) that call for the purchase of $100,000 USD on each specified settlement date in exchange for $115,000 Canadian.
Placing a Trade: Call your Axiom associate and explain your future foreign exchange requirements. Your Axiom associate will develop and recommend a forward contract program that specifically addresses your needs. Please Note: a 5% margin payment will be required for this contract with remainder due on settlement day (via wire, draft, certified cheque).
Settlement: You can choose one of the following:
- Closed forwards - specify an exact settlement date.
- Open forwards - settle anytime from the date the contract is initiated until the due date.
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