What are FX Forward contracts?

[00:03] Just like I have a fixed-rate agreement with my natural gas supplier, so if natural gas prices go up I still pay the same, you can do the same thing with ATB and foreign exchange.

FX Forward contracts are an agreement between two parties to exchange a certain amount of one currency for a given amount of another currency on some date in the future. The rate is calculated by the spot rate plus or minus an interest rate adjustment for the two countries.

What is the benefit of an FX Forward contract?

[00:33] The benefit of an FX Forward contract is that it removes all uncertainty, regardless of what's going to happen in the meantime. You don't get any benefit from positive moves in the currency, but you're also not harmed by any negative moves in the currency.

FX Forwards mature on a specific date in the future, but because we know that cash flows are not perfectly predictable, ATB also offers option-dated Forwards.

How do option-dated Forwards work?

[01:05] These provide a range of dates in the future to exercise the contract, especially useful when you know a payment is going to be made, but you may not know specifically the date.

Option-dated Forwards are also known as open-dated Forwards or window Forwards, depending on who you talk to, but regardless whether you're using a single date or a range of dates, FX Forwards remove uncertainty by fixing the exchange rate.

To speak with our Financial Markets Group about which foreign exchange strategies might work for your unique international trade arrangements, contact our team directly at 1-855-282-3939 or financialmarkets@atb.com