Forward contracts - part 1
Taught by Ben Wilson · AI tutor support included
You'll learn how forward contracts work as a hedging tool to lock in exchange rates and eliminate currency risk. This lesson covers the key differences between spot and forward rates, how banks quote forward contracts with offer and bid spreads, and the practical calculations you need for the exam.
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In this lesson
- 0:00 Introduction to forward contracts
- 0:33 Spot rates versus forward rates explained
- 2:28 What forward contracts are and how they work
- 4:07 Positive and negative features of forwards
- 7:05 How forward rates are presented in exams
- 8:35 Adding discounts to calculate forward rates
- 10:52 Deducting premiums and alternative presentations
- 12:24 Working with forward rate spreads
About this lesson
You'll explore why forwards are tailor-made products, understand their advantages (fixed outcomes, low costs, no upfront payment) and constraints (binding commitments, inflexibility), and master how to interpret forward rates whether they're presented as discounts, premiums, or direct quotes. This is essential knowledge for AFM, FM, and other papers where currency risk management appears in real exam scenarios.
Duration: 13m
Transcript
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