Foreign Exchange

Foreign Exchange

Spot Foreign Exchange Rate Contracts
Spot foreign exchange rate contracts provide for the immediate exchange of foreign currency cash flows into alternative currency. A spot foreign exchange rate transaction will involve either the purchase or sale of foreign exchange at a rate that is agreed today for physical delivery in two business days.

Forward Foreign Exchange Rate Contracts
Forward foreign exchange rate contracts provide for the exchange of foreign currency cash flows into an alternative currency on a future settlement date (beyond two business days). Forward foreign exchange rate contracts reduce uncertainty about the value of future cash flows.

Foreign currency term deposits are also available for clients who have used a forward foreign exchange rate contract as part of their foreign exchange hedging strategy and found a mismatch has occurred with either the timing or volume of the foreign currency that has been agreed to in the forward contract. A foreign currency term deposit should only be entered into if there is an ongoing and known requirement for the foreign currency at a future date.

Foreign Exchange Options
Foreign exchange options are an alternative means of managing foreign exchange exposures. Call options give purchasers the right to buy currency at a fixed price until or at a specified future expiration date, while put options give the purchaser the right to sell currency. Foreign exchange options can be regarded as a type of insurance against future currency movements and may be purchased by paying a premium.