Time option forward contract
A time option forward contract is in principal the same as a normal forward currency contract, but it has some added flexibility.Instead of being fixed to a particular date the 'time option forward contract' allows the funds to be accessed between two pre-determined dates no more than three months apart. The last date acts as the same as the contract date on a forward currency contract, in that the currency must be fully paid for by this date. A deposit is required within two working days of the 'Time option Forward contract' being agreed - the amount varies between Foreign Exchange companies, but would typically be 10% or so. The balance must be paid prior to or on the contract date that had been agreed.
A time option forward currency contract is beneficial to people purchasing a property abroad. Often a property completion date is unknown and so a 'Time option Forward contract' is very useful as the funds can be accessed earlier then planned.Equally a Time option Forward currency contract takes out the uncertainty of future exchange rate fluctuations.
Many companies that trade overseas also use Forward Contract currency options to hedge against currency movements. In order to price goods, it is much easier if you know the cost or selling price of goods in terms of your own local currency. Therefore if you are negotiating a contract, a forward contract allows you to fix a currency exchange rate and therefore budget in your own currency.
Fixed term forward contract
A Forward Contract allows you to buy currency today for a pre-determined date in the future at a fixed exchange rate. A Forward Contract helps you protect yourself against currency fluctuations. Whilst you may lose out if the exchange rate goes in your favour, the fact that the exchange rate is known and fixed is a big benefit to many people. Clients that buy properties abroad find 'Forward Contracts' very useful to bring some certainty. A currency broker will be able to provide an exchange rate for you on request.
A deposit is required (the amount varies, but usually 10%) within two working days of the 'Forward contract' being agreed. The balance must be paid prior to or on the contract date that has been agreed.
If the currency is not required on the maturity at thecontract date, the currency can be held on account once paid for.
In most circumstances a 'spot' price will be quoted when you ask for an exchange rate. In essence this means that you are committing to buying currency at that moment but you will take delivery of that currency within two days. This also means that you will be paying for the currency within two working days. When the funds are shown as 'cleared' funds the currency will be transferred to the requested beneficiary Bank account. It is also possible to buy currency as 'same day value' ( or 'value today') Equally currency can be bought 'value tomorrow'. Again once paid for it will be transferred. Sometimes the exchange and transfer of currency needs to be done quickly to meet a deadline and value today or tomorrow helps save time.