What are Forward contracts?

Forward is a transaction involving the purchase or sale of a specific amount of currency, on a well-defined date in the future. The transaction has a predetermined forward rate, which is set on the day of the transaction.

 

What forms of settlement occur in Forward transactions?

Finally, no later than two days before the transaction, the investor has the opportunity to choose the form of settlement he considers most favorable. Among the forms, there are two main ones:

• Gross – settlement involves the physical exchange of currency between the parties
• Net – The transaction is settled by settling the difference derived from comparing the forward rate with the reference rate. The difference is then multiplied by the value of the transaction in currency.

What is the reference rate in Forward transactions?

This is the fixing of the National Bank of Poland, which is set two business days before the settlement date of the transaction. You can check it each time on the official website of the National Bank of Poland.

What does the forward transaction protect against?

This transaction is considered one of the existing safeguards against changes in currency exchange rates before the final settlement between the parties takes place. In this way, if one of the parties is a company, it does not lose out on the exchange rate difference when it exchanges foreign currency for domestic currency.

Who are the parties to the Forward transaction?

While the main transaction may occur between investors, traders and so on, the forward transaction itself is between the bank and one of the parties to the transaction who will care about securing the deal.

Does the bank charge additional fees for Forward transactions?

The bank does not charge any additional fees on the transaction in the form of insurance, commissions, etc.

What term do Forward transactions cover?

Typically, these dates are longer than a few days, and although a week, two weeks, a month, a quarter, a year are standardly given. Banks, however, are open to suggestions from customers, who can give specific dates that suit them. Of course, banks are so flexible only with customers who are able to make transactions of this type for sufficiently large amounts. For regular customers, standard products are offered.