Forward contracts
You'll learn how forward contracts work and how to calculate the exchange rate you'll receive when hedging foreign currency transactions.
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In this lesson
- 0:00 Forward contracts explained
- 0:25 Understanding forward rates and adjustments
- 1:01 DAPs rule: discounts and premiums
- 1:34 Harry Koh worked example
- 3:14 Bank advantage in currency hedging
About this lesson
This video covers the key mechanics: what a forward contract is, how forward rates are quoted (including the DAPs rule for discounts and premiums), and how to apply the correct rate in exam questions. You'll see a worked example showing how a US manufacturer calculates dollars received from a UK sale using a forward contract, and learn the crucial principle that the bank always wins—meaning you need to use the rate that's least favourable to you. This is essential knowledge for FM, AFM, and SBL papers where foreign exchange hedging appears regularly.
Duration: 4m
Transcript
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