Foreign Exchange Futures Rates
foreign exchange futures rates
When is a forward exchange contract exercised?
ADSENSE
If an organization enters into a forward exchange (future contract) and the foreign currency DOES NOT appreciate as expected, does the organization still have to uphold the exchange rate as determined in the contract? Can they choose NOT to exercise the contract and use the spot rate instead? Writing a paper on currency hedging…thanks for your help!!
A foreign exchange contract is an agreement to buy some currency at a predetermine rate at some point in the future. If the rate does not change the way they expected, they would still have to go through with the contract.
If this was an option to buy or sell currency at a given rate at some point in the future, then they would not have to exercise the option if the currency did not move in the “in the money” direction. However, they would still be out their premium (the price for obtaining the option)
However, the contract you describe is not an option
Interest rate parity (IRP)
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