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a binding obligation to buy or sell a certain amount
of foreign currency at the current market rate, for
settlement in two working days time.
Purpose
Companies who have foreign currency exposure may use
a spot deal. Companies exposed to transactional risk
most commonly use them.
Key
Factors
No
minimum deal size
No maximum deal size
Contract can be done in any currency where there is
a liquid market.
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A
forward exchange contract
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Is
a binding obligation to buy or sell a certain some
of foreign currency at a pre agreed rate of exchange,
on or before a future date. Theoretically, the forward
price for a currency can be identical with the spot
price. However the forward price in practice in either
higher (premium) or lower (discount) than the spot
price.
Purpose
To
cover or hedge a foreign exchange exposure from future
adverse fluctuations.
Why
do you need forwards
Commercial
reasons
Avoiding
risk exposure
Covering
a mismatch of cash
Arbitrage
Speculation
Value
Dates
All
forward dates are set, based on the spot trading date
for the currency pair involved.
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| Contract
to sell and subsequently repurchase securities (T /
Bills, T / Bonds) at a specific date and a price.
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Reverse
Repurchase Agreement |
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| Contract
to sell and subsequently repurchase securities (T /
Bills, T / Bonds) at a specific date and a price.
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| Treasury
Bills are short term debt instruments issued by the
Central Bank of Sri – Lanka on behalf of the
Sri – Lanka Government fixed interest rates
and maturity periods of 3, 6 and 12 months. They are
issued at a discount.(Face Value – Interest)
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Treasury
Bonds are long term debt instruments issued by the Central
Bank of Sri Lanka on behalf of the Sri Lanka Government
with fixed rates and maturity periods from 2 to 20 years.
Interest payments are made very 6 months and the face
value is repaid on the maturity date. |
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