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FX Forwards

Capital Markets

Bryn Mawr Trust provides market expertise and hedging solutions to help organizations and individuals manage their currency risk. Our team of experts dedicates time to understanding our customers’ needs; we structure hedging plans and products according to those specific needs.

Forward Exchange Rate Agreements (forwards) are among the tools used to hedge currency risk. A forward is a derivative product to protect against unfavorable movements in foreign currency. It locks an amount and exchange rate for a future date. It is also a cost-effective way to match currency risk to your cash flows.

Forward Rates

  • Driven by the market.
  • Calculated using the interest rate differential of the countries for which the currencies are being exchanged.

FX Forward Use Cases

  • Customers purchasing goods and services from foreign vendors and paying in foreign currency.
  • Customers selling goods and services in foreign markets and getting paid in foreign currency.
  • Organizations receiving dividends or royalties in foreign currency.
  • Businesses wanting certainty on the cost of foreign currency payments and receipts. 

Four Types of Forwards

  • Outright forwards – Executed for a specific settlement date. Contractual obligation to transact. 
  • Window forwards – Executed for a date range (can then be settled on a date within that range). Contractual obligation to transact. 
  • Non-deliverable forward – No delivery of foreign currency takes place, always net settled in USD. Executed for exotic currencies where no tradable forward market exists. Contractual obligation to transact. 
  • Participating forwards – Unlike a traditional forward, there is no contractual obligation to transact.  It provides the benefits of an option without the cost of a premium. It offers protection on adverse movement in currency and allows the purchasers to benefit from favorable moves on participated amount.

Learn more about BMT Capital Markets