ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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True
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False
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Either A or B
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None of the above
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Detailed explanation-1: -What is an FX forward? An FX forward is a contractual agreement between the client and the bank, or a non-bank provider, to exchange a pair of currencies at a set rate on a future date.
Detailed explanation-2: -FX forward contracts are usually settled on the 2nd good business day after the trade, often depicted as T+2. If the trade is a weekly trade, such as 1, 2, or 3 weeks, settlement is on the same day of the week as the forward trade, unless it is a holiday, then settlement is the next business day.
Detailed explanation-3: -The forward exchange rate is determined by a parity relationship among the spot exchange rate and differences in interest rates between two countries, which reflects an economic equilibrium in the foreign exchange market under which arbitrage opportunities are eliminated.
Detailed explanation-4: -Forward price The price of an instrument that settles later than the spot is a mix of the spot price and the interest value before the settlement date.