Forward contracts are similar to options, that is, banks holding forward debts (with future expenditures) can buy forward contracts, pay interest in the future or buy currencies at agreed prices (interest rates or exchange rates), so that the currencies to be paid to others in the future can be locked, thus achieving the purpose of controlling risks;

Banks with forward assets (future income) can sell forward contracts, earn interest in the future or sell money at an agreed price (interest rate or exchange rate), so as to lock in future monetary income and achieve the purpose of controlling risks.

2. Relativity is different.

Sales contracts are a set of relative behaviors. Isn't buying a contract a contract sold by others? Trading exists because people have different analysis on the trend of interest rate and exchange rate. People who buy contracts think that interest rates or exchange rates will rise in the future, so they pay the price by buying options now.

The person who sells the contract thinks that the interest rate or exchange rate will fall in the future, so it is time to lock in the price to be sold in the future.

3. Different purposes

The biggest role of forward contracts is not arbitrage, but hedging.

Extended data

Related risks

Risk comparison between forward contract and recent contract

Compared with recent contracts, forward contracts have a longer trading cycle and a longer time span, which contains many uncertainties. In addition, the turnover and positions of forward contracts are not as large as those of recent contracts, and the liquidity is relatively poor. Therefore, the price fluctuation of forward contracts is more intense and frequent than that of recent contracts. Because of this, in financial derivatives, the risk is passed on to the buyer.

This risk value is not worth considering, of course, it depends on personal choice and actual environment. Even if today's volatile market shows no signs of weakening, many enterprises still choose to determine the exchange rate to some extent to prevent unexpected and destructive fluctuations.

Obviously, by using forward contracts to fix the exchange rate of international payments, finance will better manage the expenditure of enterprises. They will implement a predetermined exchange rate for a certain number of currencies, so that they can better cope with unpredictable market interference and other external changes.

In the uncertain period, enterprises can pay attention to managing as many financial matters as possible. The bottom line is to fix the exchange rate in advance to eliminate the risk of fluctuation.

Baidu Encyclopedia-Forward Contract