Forward exchange contract

A forward contract provides certainty over the conversion rate for the specified amount and timing, subject to counterparty performance and contractual terms. The forward rate is agreed when the contract is made and need not equal the current spot rate or a forecast of the eventual spot rate. The business is generally committed to perform, so it normally gives up gains from favourable currency movements as well as avoiding adverse ones. If the underlying transaction changes or disappears, closing or adjusting the forward can have a cost or gain.