​​​​​​​​​​Defend your business against FX risk.

FX Forward

FX Forward is an agreement/ contract between the client and the bank to buy a currency and sell another currency (exchange), at a specific amount in the future (settlement date). There are three types of forwards offered:

1. Forward or Outright Forward is a conventional forward contract that has a specific settlement date.
2. Time-option Forward is a forward contract that allows flexible settlement date within a specified period, and for multiple purchases (or sales). However the whole amount must be fully utilized within the agreed (final) settlement date. The exchange rate is fixed (unchanged) for all the settlement.
3. Pro-rata Forward is a forward contract that allows flexible settlement date within a specified period, and for multiple purchases (or sales). However the whole amount must be fully utilized within the agreed (final) settlement date. The exchange rate is prorate based on the agreed swap point per day and each actual settlement date.

Pro-rata Forward and Time-option Forward

Settlement rate calculation

Settlement rate = Base rate + (Swap Point per day x n)

n = Number of days, from the first day of the (specified) period until the settlement date

Gain & Loss

Similar to the conventional FX Forward, gain and loss of the Pro-rata and Time-option Forward are calculated from;

• the difference between the forward rate (contracted rate) and the market (spot) rate on the settlement date, multiplied by the notional amount.
  

If the forward rate is higher than the market rate on the settlement date, exporters will gain from their transactions (but the importers will loss). However, if the forward rate is lower than the market rate on the settlement date, importers will gain from their transaction (and the exporter will loss).

Example

USD/THB forward rate = 35.00, market rate on settlement date is 36.00, Notional amount = US$1,000,000

Exporter : (forward rate – spot rate) x notional amount

: (35.00 – 36.00) x $1,000,000 = -1,000,000 Baht >>The exporter has opportunity loss = 1,000,000 Baht in this transaction

Importer : (spot rate – forward rate) x notional amount

: (36.00 – 35.00) x $1,000,000 = 1,000,000 Baht >> The importer has opportunity gain = 1,000,000 Baht from this transaction

Scenario Analysis Remarks

1. Assume client enter into a forward selling of USD against THB and time value of money is not consider
2. Gain and loss from the forward will continue to increase as market rate differ from forward rate (contracted rate)