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Key Activities of Forward Exchange Market and Usefulness for International Traders

Critically discuss key activities of forward exchange market and the usefulness of this market for international traders

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Added on  2022-12-15

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This report discusses the key activities of the forward exchange market and its usefulness for international traders. It explores the concept of floating exchange rates and spot rates. The forward market allows traders to customize contracts and hedge against risks. It is beneficial for investment and speculation purposes.

Key Activities of Forward Exchange Market and Usefulness for International Traders

Critically discuss key activities of forward exchange market and the usefulness of this market for international traders

   Added on 2022-12-15

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FORWARD MARKET
Key Activities of Forward Exchange Market and Usefulness for International Traders_1
Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Reflect and discussing key activities of forward exchange market and usefulness of the market
for international traders................................................................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6
Key Activities of Forward Exchange Market and Usefulness for International Traders_2
INTRODUCTION
Forward market is over the counter market which fix prices for the financial instrument
and for the future delivery asset. Forward markets have multiple use like it is useful for trading
financial instruments. Forward market is used with the foreign exchange markets. This report has
discussed key activities of the forward exchange market and its useful for international traders.
Further will also discuss floating exchange rate system and spot rates.
MAIN BODY
Reflect and discussing key activities of forward exchange market and usefulness of the market
for international traders.
Forward market:
Forward market is that market which gives financial instruments and in advance only it is
priced for the future delivery. It is the foreign exchange market but it can be applied in interest
rates, securities and commodities. The exchange of forward and future contracts can happen in
forward markets. In this prices are set for the delivered financial instrument. Its prices are set on
the basis of two currencies interest rate difference at the time of trading. Forward contracts and
futures are not same, and they are different (Abbassi and Bräuning, 2020). Forward contracts are
customizable and futures are standardized.
Forward contracts are created by forward markets. For the purpose of speculation forward
contracts are to be used. Transactions of forward contracts takes place between banks and then
further banks to customers. Both future and forward contracts are given by forward market.
According to the holder's demand forwards customization can be done in forward contracts while
future contracts have standard norms related with size or maturity.
In the forward contract party can buy or sell the asset with the given time in the future and at the
predetermined price. Customization is the vital feature of forward contract. Customization can be
done on the basis of date, commodity etc. commodity involves metals, natural gas, grains etc.
forward settlement are based on the monthly cash payment or based on one time delivery (Yin,
Luo and Fan, 2017). In the forward markets, on the basis of interest rate contracts are priced.
Currency forward contracts:
Key Activities of Forward Exchange Market and Usefulness for International Traders_3

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