ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Broadly speaking, forward contracts are contractual agreements between two parties to exchange a pair of currencies at a specific time in the future. These transactions typically take place on a date after the date that the spot contract settles and are used to protect the buyer from fluctuations in currency prices.

Detailed explanation-2: -A forward exchange occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. Exchange rates governing such future transactions are referred to as forward exchange rates.

Detailed explanation-3: -A currency swap is an agreement in which two parties exchange the principal amount of a loan and the interest in one currency for the principal and interest in another currency. At the inception of the swap, the equivalent principal amounts are exchanged at the spot rate.

Detailed explanation-4: -7.8 Forward exchange contract means an agreement to exchange different currencies at a forward rate. 7.9 Forward rate is the specified exchange rate for exchange of two currencies at a specified future date.

Detailed explanation-5: -Currency forwards and futures are very similar. The main difference is that currency futures have standardized terms and are traded on exchanges such as the Chicago Mercantile Exchange (CME), whereas forwards have customizable terms and are traded over-the-counter (OTC).