Devisenforward

A Devisenforward, or simply a foreign exchange forward, is a derivative financial instrument involving a contractual agreement between two parties to buy or sell a specific amount of a currency at a predetermined exchange rate on a specified future date. It is a customized, over-the-counter contract, meaning its terms are negotiated directly between the parties involved, typically facilitated by a financial institution.

The primary function of a Devisenforward is to hedge against foreign exchange risk. For example, an importer who knows they must pay a foreign supplier in three months can lock in the exchange rate today with a forward contract. This action eliminates the uncertainty of what the exchange rate will be in the future, allowing for precise financial planning and protecting against unfavorable currency movements. Conversely, an exporter expecting a future payment in a foreign currency can use a forward to secure the rate at which they will convert those funds back into their local currency.

The agreed-upon rate is known as the forward rate, which typically differs from the current spot rate. The difference between the spot and forward rates is called the forward points, which are determined by the interest rate differentials between the two currencies involved. No money is exchanged when the contract is initiated; the settlement occurs on the maturity date. As these are binding agreements, they obligate both parties to complete the transaction at the agreed terms, regardless of the prevailing market rate at settlement. This makes them a powerful tool for risk management in international trade and finance.