“A forward contract between a bank and a customer (which could be another bank) calls for delivery, at a fixed future date, of a specified amount of one currency against dollar payment; the exchange rate is fixed at the time the contract is entered into.” A forward contract is one of the most popular ways of hedging exchange rate risk. No matter what happens to the exchange rates, the forward contract will keep the rates at a fixed, agreed upon rate. Not all currencies have forward markets. “Forward contracts are readily available in the major currencies (e.g., the U.S. Dollar, British Pound, Euro, Swiss Franc, and Yen). Contracts can also be obtained in other currencies, such as the Mexican Peso, Swedish Krona, and South African Rand.” A forward market shows at which price forward contracts are sold. They are usually kept in increments of 30 days. There is the 30 day forward contract, 60 day, etc… up to 360 day. The longer it takes to maturity the lower the asking price for the contract tends to be. For instance a 30 day contract will cost a little more than a 60 day and so on. There are some problems with the forward contracts, however. “First, contracts may only be available for settlement in sizes that do not match the exact amount of the underlying business transactions. Also, the settlement date may not precisely match the required date. Further, because they are special transactions between two parties, it can be difficult to sell them to a third party. Finally, the exchange and/or transaction premium offered may not be competitive.” However, forward contracts are one of the viable ways of hedging exchange rate risk. If the size or date is a problem it may be a good idea to look into currency options and/or futures.   SOURCES Sarin, Atulya and Shapiro, Alan C. Foundations of Multinational Financial Management, 6th Edition. 2009 John Wiley and Son, Inc.http://www.stevebragg.com/Pages_Articles/Articles_Cash_Financing/Forward...