What is a Forward Foreign Currency Buy / Sell Transactions?
They are the transactions made as a result of an agreement that regulates the trading of a currency against another currency based on a predetermined maturity and exchange rate.
Why Should I Use Forward Foreign Currency Buy / Sell Transactions?
Forward exchange ensures to avoid the risks that may arise by fixing the exchange rate risk.
- Its conditions are determined by a special agreement between the bank and the customer.
- The exchange rate is determined for the maturity date in the agreement.
- The maximum maturity period is 365 days.
- To ensure avoiding risks that may arise by fixing the exchange rate risk.
How Can I Use Forward Foreign Currency Buy / Sell Transactions?
Daily Settlement Price
As long as the customer's position remains open, the initial collateral deposited is subject to revaluation each day according to the new exchange rate with the same maturity. After the valuation, if the customer’s collateral falls under the initial collateral, the customer is asked to immediately bring his/her collateral to the level of "initial collateral".
Example: Forward transaction example dated 27.12.2019
| Type of Transaction | Forward Exchange Purchase |
|---|---|
| Underlying Asset | USD/TL |
| Spot Exchange Rate (27.12.2019) | 5,4850 |
| Expectation | USD Increase |
| Maturity (27.01.2020) | 1 Month |
| Transaction Amount | 100.000 |
| Forward Exchange Rate | 5,60 |
- Regardless of the USD / TL exchange rate prevailing on the maturity date on the market, the forward transaction amounting to 100,000 USD takes place at the exchange rate of 5.60.
- If the market rate is over 5.60 on the maturity date, the customer, who is the buyer of foreign exchange will have satisfied the need for foreign Exchange at a lower level and make a profit.
- If, on the other hand, the market rate is below 5.60, the customer will not be able to benefit from the level of spot exchange on the maturity date.
