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Spot | Forward | Protection |
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A contract to exchange foreign currency that is due for settlement by the spot date (within two business days after the trade date, i.e., T+2). |
A contract to buy or sell a certain amount of foreign currency to be settled at a specified rate within a specified period in the future (longer than for spot contract) |
A contract allowing the client to buy or sell a foreign currency, if wanted, at the client's preferred rate of exchange, within the option period. |
Advantage |
Advantage |
Advantage |
Exchange of most foreign currencies can be done quickly and conveniently. | Eliminates exchange rate uncertainty on settlement date, allowing foreign currency costs or income to be calculated at the forward rate |
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Limitation | Limitation |
Limitation |
Client is exposed to currency market volatility, with a risk of loss. | Client is obligated to the specified rate, which could represent the loss of an opportunity to maximize income or lower a cost, if the exchange rate has moved against the client's favor by the settlement date. |
Client is subject to an explicit and set fee, due upon contract signing. |
Remark: | Remark: | |
Client may choose one of three settlement date options: | Client must specify exchange rate option details below: |
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· Value today | 1. Currency |
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· Value tomorrow | 2. Exchange rate |
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· Value Spot | 3. Exchange amount |
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4. Contract period |
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