DefinitionUnlike a spot market, the forward market are transactions that take place at a future date. The participants within the market are: arbitrageurs, speculators and hedgers.  Forward ContractA forward contract is an agreement between a bank and a customer to buy or sell. With a forward contract the delivery is not immediate, but rather calls for a fixed future date. When creating the contract, the exchange rate is fixed. Also, during the time of the initial contract, a specified amount of one currency against another currency is known.   As discussed in class, the purpose of a forward is hedging. Hedging is the process of reducing or mitigating change rate risk. The hedging tools used are, forward, future and option, each entailing a different feature. As for the forward tool, the contract features a fixed currency amount. Next for future, the feature is a fixed exchange rate. Finally, an option features a fixed expiration date.  Forward contracts typically have terms for 30-day, 60-day, 90-day, 180-day or 360-day delivery, however not limited to these terms. In some cases, longer terms are granted.  Forward QuotationsForward rates can be expressed in two ways, the outright rate or the swap rate. When using the outright rate, commercial customers are typically quoted the actual price. On the other hand, the swap rate is when dealers quoted the forward rate as a discount or a premium on the spot rate. A forward discount is if the forward rate expressed in dollars is below the spot rate, oppositely a forward premium is when the rate exceeds above the spot rate.  Exchange RiskThe risks in a forward market are based on the variability of future spot rates. The forward market is affected because even when having a stable spot market, there is no guarantee that future rates will remain constant. Further, as contracts mature, uncertainty increases, causing dealers to quote wider spreads to compensate themselves for the higher risk.