Forward Points
The amount added to or subtracted from the spot rate to price a forward contract. They reflect the interest-rate difference between the two currencies over the contract period.
Related terms
Forward Contract
An agreement to exchange a set amount of one currency for another at a fixed rate on a future date. It locks in today’s rate, protecting a business from adverse currency moves before a payment falls due.
Read full definitionFX Swap
The simultaneous purchase and sale of the same amount of a currency for two different value dates, typically a near leg at spot and a far leg forward. It is used to roll a hedge forward or manage short-term cash-flow timing.
Read full definitionSpot Rate
The current market exchange rate at which one currency can be bought or sold for immediate delivery. Spot trades typically settle two business days later (T+2).
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Hedging
Taking an offsetting position to reduce the impact of currency or price movements on a business. The aim is to protect margins and make cash flows more predictable, not to speculate.
Read full definitionOptions Collar
A hedging strategy that combines buying a protective option and selling another to offset the cost. It caps downside risk within a defined range while keeping some upside, often at little or no premium.
Read full definitionNatural Hedge
Reducing currency risk by matching revenues and costs in the same currency, so gains and losses offset without a financial instrument, for example, paying suppliers in the currency you also earn.
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The degree to which a business’s financial results are affected by exchange-rate movements. It arises from foreign-currency sales, purchases, assets, liabilities or forecast cash flows.
Read full definitionMark-to-Market
Revaluing an open position at the current market rate to show its present gain or loss. Hedges are marked to market so a business can see the live value of its contracts.
Read full definitionMargin Call
A request for additional funds when an open hedging position moves against you and its mark-to-market loss exceeds the collateral already posted. It restores the required security buffer.
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