Deliverable currency forward. Types of forward operations. Main characteristics of a forward contract

forward contract- a certain agreement concluded between the two parties on the forthcoming delivery of the underlying asset.

The existing terms of the contract are negotiated at the time of its conclusion. A forward contract is executed on the basis of these conditions and on time.

What are the features of a forward contract?

The conclusion of a forward contract does not provide for any costs, with the exception of those commissions that will be spent on processing the transaction, if it is carried out with the help of an intermediary.

Is forward contract, usually for the purpose of buying or selling a required asset, in addition to insuring a supplier or some buyer against a potentially unwanted price change. Counterparties, on the other hand, are insured against undesirable developments, not being able to take advantage of a potentially favorable market situation.

The terms of the forward contract stipulate the obligation to perform, but despite this, the counterparties are still not 100% insured against its non-performance. For example, due to the bad faith of any of the participants in the transaction or the bankruptcy of the company. Therefore, before concluding a deal, you need to make sure that both parties are solvent and reputable.

Also, a forward contract can be concluded, in which the goal is to play on the difference in the value of the asset rate. A buying analyst expects the price of the underlying asset to rise, and a selling analyst expects the asset price to fall.

For its primary purpose, a forward contract is considered an individual type of contract. For this reason, other markets for forward contracts for a large share of assets are poorly developed or not developed at all. An exception here may be forward.

When signing a forward contract, both parties agree on the price of the transaction. This price is called the delivery price, after which it remains constant throughout the duration of this forward contract.

With the advent of the forward contract, the concept of a certain forward price appeared. Relative to each time interval, the forward price, for the current underlying asset, is the delivery price noted in the contract signed to date.

Legal features and types of forward contracts

Let us examine in more detail the legal features of forward contracts. As we have already said, the forward type of contract involves the real delivery of any product as the final result. Since the object of the forward is the real product, that is, the things that are available. With all this, the reference to the validity of the goods should in no way infringe on the right of the seller to conclude a contract for the sale of goods that will be manufactured or purchased by the person selling the goods in the future.

A forward contract is enforced some time later, after its direct conclusion.

A forward is a justified opportunity to insure profits.

Before concluding such an agreement, its important conditions are stipulated, namely:

• terms
• total quantity of goods
• its price, which is not completed before a specific delivery date.

This type of risk insurance is called hedging in the market. The base price of a commodity in all forward transactions is different from its price in cash transactions. In addition, it can be set both at the time of signing the contract, and at the time of calculation and delivery.

The execution cost of a forward transaction (which is determined for the period of its implementation) is some average exchange price indicator for this product.

The forward price is the result of the participants' assessment of all possible factors influencing the market, and all further prospects for the development of related events on it.

Price ratio in forward contracts

In the process of development of the foreign exchange market, forward contracts began to be divided according to the method of delivery into the following types:

delivery type of forward contracts;
further, settlement forward contracts, in other words, non-deliverable types of forward contracts.

As for delivery contracts, the delivery under them is calculated initially, and mutual settlement is made by paying one of the parties the resulting difference in the cost of the goods or a previously established amount, based on the terms of the contract.

When working with settlement types of contracts, the delivery of goods (ie the underlying asset) is not provided from the beginning of the transaction. Such contracts allow the losing party to pay a set amount of money, the difference between the price itself, stipulated in the contract and the current market price on a specific date.

The calculation for this amount (also called the variation margin) is made at a previously appointed time, as a rule, in relation to the delivery of the basis.

Determining the forward price

Based on the theory, in the process of determining the forward price, 2 concepts are usually distinguished:

The first is that the forward price arises as a result of the upcoming expectations of all participants in the futures exchange, in relation to the upcoming spot price.

The second type of concept is based on the arbitrage method. According to the provisions of the primary concept, all participants in economic relations are trying to take into account and consider all the information that they have in relation to the upcoming conjuncture and set the price of the future spot.

An arbitrage approach is built on the basis of technical mutual agreement between the current spot and forward prices, which is set without any possible risk.

The arbitrage approach is based on the following provision: on the basis of a financial decision, the investor is obliged to be indifferent in the matter of obtaining the underlying asset in the spot market now or under a forward contract in the future.

During the life of the forward contract, income on shares will either be paid or not.

If during the term of the contract a profit accrues per share, then it is necessary to change the forward price by its value, because by signing the contract, the investor will not receive his dividends. Moreover, there is a definition of the forward price of the currency itself, based on the parity of % rates, which consists in the fact that the depositor is obliged to receive an equal return on placement Money at a certain percentage without significant risk in foreign, and necessarily.

Forward contract and mutual obligations

forward transaction – This is a type of transaction in which one of the parties undertakes to sell to the other party a certain amount of foreign currency within a predetermined period at a specific rate. In this case, the course will be indicated in the agreement..

Thanks to forward transactions, you can buy and sell currencies in the future without worrying about possible price fluctuations. This opens up great opportunities for businessmen to manage risks, and allows them not to worry about unforeseen changes in the exchange rate of the national currency.

Consider an example of a real forward transaction:

A large Russian plant plans to conclude a contract with foreign suppliers for the purchase of raw materials with a total value of $ 300,000, which must be paid in 3 months. The management of the plant came to the conclusion that the conditions are quite acceptable. So, taking into account the current dollar exchange rate - 59r. - in 3 months, 17 million 700 thousand rubles must be paid. But what will happen if the ruble suddenly falls, say, to 65 rubles. for 1 dollar? Obviously, nothing good for the plant, because the contract amount will already be 19 million 500 thousand rubles. This is where a forward contract comes in handy. Let's say a broker provides a leverage of 1:50 and the factory is required to pay something like a deposit of 10% (this is the maximum) of the total contract amount - in this way, buyers guarantee themselves the purchase of raw materials at a fixed exchange rate.

Forward transactions are great for international companies because they protect against unexpected monetary losses. But in last years there is a growing number of private investors who use this type of contracts in order to protect themselves during large foreign purchases, such as real estate, or, if necessary, pay for training, long business trips, etc. And increasingly, traders in the financial markets use this tool to make a profit.

The main advantage of working with a currency forward, in contrast to trading currency pairs, is the absence of swaps. A great option for long-term trades, because you do not have to pay for daily position rollovers. Taking into account the duration of the transaction for several months - a significant savings in the trader's deposit!

Best forex brokers

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Specific features of currency forwards:

• non-negotiable and binding contract;
• the parties must agree on the size, time and place of delivery, the quality of the asset is specified, and other requirements of the parties are taken into account;
• this contract is not subject to mandatory reporting;
• the main advantage is a clearly fixed price for a specific date;
• as the main drawback - regardless of the value of the price, none of the parties will be able to refuse to fulfill the contract.

Forward transactions are categorized as futures. The same category includes:

d) various combinations of the above transactions.

Consider another example of a EUR/RUR forward contract

The firm plans to purchase imported goods in 2 months. Of course, this requires a currency. In order to reduce risks, the company resorts to hedging and enters into a forward contract for the euro for 2 months.

The price of the contract on the date of its completion will be calculated at the following rate: 69 rubles for 1 EUR. But, in the foreign exchange market, the exchange rate is constantly changing, and after 2 months the ruble fell to 72 rubles per 1 euro. But our trading company will still receive the required amount at the rate of 69 rubles. To do this, you need to transfer a deposit to your broker.

What is the difference between a futures contract and a forward contract

A futures contract is a fairly standard contract between two entities. One of them undertakes to deliver the underlying asset at the agreed date and time, and the other undertakes to buy. Futures refers to exchange-traded instruments, it is traded on the exchange, and the rules for conducting such transactions are regulated by the rules of the exchange.

Some other differences between forwards and futures:

• a forward transaction allows the parties to independently determine the volume of supply, with futures, the volume of the contract is set by the exchange, and the parties can trade only a certain number of contracts;
• futures allow you to trade assets, regardless of their quality, only mutual consent is enough; for futures contracts, the exchange sets the quality;
• the forward has limited liquidity, while the future is considered highly liquid (although this indicator varies depending on the underlying asset).

Foreign exchange transactions are operations in which the exchange is carried out valuable papers in one currency to securities in another currency. In this case, the course is agreed in advance on a specific date. There are several types of foreign exchange contracts. First of all, it is necessary to note cash or cash transactions. Such operations, which are also called spot, are performed based on current prices. During these transactions, within two days or immediately, one currency is purchased for another.

Types of transactions

In addition to the types of transactions described above, there are others. For example, urgent or forward transactions. In the course of such transactions, the acquisition or sale of a monetary unit takes place at the exchange rate established at the time of the conclusion of the agreement. At the same time, when performing a forward transaction, the period for which it is concluded is immediately specified, and at the end of which the currency is transferred. Swap transactions are the purchase of monetary units on a spot basis. In this case, the currency is exchanged for another with the obligation to redeem it in the future after a specific agreed period of time.

Urgent currency transactions

The main types of futures transactions include forward, currency futures and options. Let's consider them in more detail. A forward is a binding contract entered into outside the exchange. As a rule, such transactions are carried out with the aim of making the actual sale or purchase of the relevant monetary units with delivery in the future in the time interval agreed upon by the parties. In addition, forwards may be entered into with the intent to hedge, that is, to insure their currency risks.

Forwards can be single, and then they are called outright, or included in various combinations. Swap is an example of the second type. It would be appropriate to emphasize that for transactions of the forward type, the rates for buying and selling currency are fixed. In other words, the forward market is two-sided. It is distinguished by low liquidity and closed prices.

Futures contracts

Futures are exchange contracts that have standard characteristics. These include the amount of the contract, as well as the term and procedure for settlement between the parties. Futures are sold exclusively on the stock exchange. At the same time, it is mandatory to comply with certain rules that are the same for all bidders. It should be noted that when organizing a currency future, both the seller and the buyer enter into appropriate agreements with the exchange, and settlements on transactions are carried out through the clearing house of the trading platform. This procedure guarantees the participants in operations the fulfillment of all obligations under the agreements.

When concluding such transactions, the seller is responsible for the delivery of the standard currency amount, and the buyer of the currency futures must pay for it at the rate fixed at the time of the transaction. At the same time, it should be emphasized that one of the key features of futures is a small share of real currency supplies. It is approximately 1-2% of the number of all agreements concluded on the exchange. In the majority of foreign exchange transactions of this type, open positions are then closed by conducting counter-transactions of the same amount.

Option transaction

The peculiarity of an option is that it is not a firm, or binding, futures transaction, as is the case with currency forwards and futures. In practice, it looks like this. The buyer of the option has the option to either exercise his right and execute the transaction in accordance with the terms of the option agreement, or leave the contract unexecuted. Provided that the option buyer still decides to execute the contract, the seller receives a bonus reward, which will remain with him regardless of the fact that the option is exercised.

The advantage of an option over forward transactions and futures is the possibility of insurance against unfavorable market currency exchange rate fluctuations. In addition, options allow you to effectively take advantage of these changes for profit.

Currency and traditional futures

Working with both conventional and currency futures is to use general principle: according to the concluded agreement, the sale or purchase of a certain volume of an asset at a set price is carried out at a predetermined time. The main difference between traditional and currency futures is that trading in currency futures is not centralized. Such transactions are concluded on various trading floors in the United States of America, as well as outside this state. It would be opportune to emphasize that most currency futures are traded on the Chicago Mercantile Exchange.

At the same time, one interesting point should be noted regarding futures. Currency transactions under such contracts outside of US jurisdiction are also legal, as they are subject to a number of restrictions and certain rules. It is also worth paying attention to the fact that, unlike the spot currency market, absolutely all currency futures are quoted against the US dollar.

Areas of use of currency futures

The two main uses of currency pair futures are speculation and hedging. The use of currency futures in hedging makes it possible to reduce or completely eliminate the risk caused by sudden changes in the exchange rate. The purpose of speculation is to obtain the greatest profit by using the difference in exchange rates.

Hedging currency risks with futures

The strategy of using such a tool as hedging when working with currency futures is very popular among traders. And there are a number of reasons for this. First of all, this tool is used to reduce or eliminate the risks caused by rapid price changes. And this, in turn, is reflected in sales revenue. Let's take an example. A trade organization that owns a retail chain in the EU wants to know the exact amount of profit expressed in US dollars. To this end, the company purchases a futures contract, the value of which is equal to the expected profit of the retail chain.

In addition, you should pay attention to the fact that when using hedging, the trader has the opportunity to choose between futures and forward transactions. These tools differ from each other in a number of characteristics. So, forward contracts are not limited by the size of the transaction and the time. This feature provides an opportunity to adjust the contract if necessary. At the same time, there is no such right when working with futures. Futures contracts have a fixed size and expiration date.

Payment under a forward transaction is made after the expiration of its implementation period. These transactions are calculated every day. It should also be noted that using hedging currency risks with futures, a trader has the opportunity to re-evaluate his own positions as often as he needs. But when using forwards, this is not possible, and you will have to wait for the expiration of the transaction.

There are a huge number of financial instruments in the economy. Let's talk about one of them. A forward contract is essentially a contract between two parties that details the purchase or sale of a specific quantity of an underlying asset at a clearly defined price, with a future date included. The signing of this type of contract means that one of the participants in the transaction - the seller, undertakes to deliver a specific amount of underlying assets to the number specified in the contract, but which is remote in relation to the date of signing the contract. The other party, the buyer, undertakes to accept the delivery within the agreed time.

Main characteristics of contracts

The date on which the forward contract is signed is called the agreement date. The number that is determined by the parties as the time for the implementation of the agreement is called the date of payment or settlement. The time interval from the moment of signing the contract to the moment of settlement is called forward. Contracts can be concluded for any period and amount of funds, everything depends solely on the needs of each of the parties. The most effective are considered to be forward transactions, the cost of which starts from $5 million. Within the framework of the international futures market, the amount of contracts varies from 1 to 100 million. Each of the parameters - the date of signing the contract and the date of settlement, the amount of the transaction and the volume of the underlying asset - are determined purely on an individual basis. There are no restrictions in this matter.

Risk hedging

Due to the preliminary determination of the value of the contract, it is possible to hedge risks. By setting the price of a financial instrument, both the seller and the buyer are completely released for the forward period from the risk of changes in market value. The deal does not provide for the acquisition of certain benefits. The seller does not receive a material advantage in the event of an increase in the value of an asset in the market, and the seller does not receive a material advantage as a result of a fall in the same asset. If this situation takes place, then one of the parties may refuse its obligations, as it gets the opportunity to make a deal on more favorable terms. Contracts are defined as firm futures deals. It is the obligation to fulfill their part of the agreement that underlies them; without this feature, the instrument would cease to exist as a direction for hedging risks.

Story

Forward transactions first appeared about 400 years ago. They had the format of agreements on the sale of the future harvest. Over the past few decades, contracts, the main subject of which were precisely financial instruments, have become especially popular. The financial forward market is essentially an over-the-counter market. Exchange trading is unacceptable due to the individuality of the conditions for concluding agreements. Formally, any business entity can participate in contract trading. In practice, the choice of a partner is carried out very carefully and carefully, as it allows to reduce the risk of delivery disruption.

Forward Market Participants

For the most part, the parties to the contracts are large banks and pension funds, insurance companies that have a positive reputation. Certain categories of transactions are subject to certain restrictions. An example is forward credit transactions, in which one party must have an open line of credit with the company that is the other party to the arrangement. Private entrepreneurs can also act as bidders, but they must have a strong material base and be active participants in world financial life.

Who determines the mood in the forward market?

Banks are the most active players in the forward market. They actively use a forward contract to buy currency to hedge their own risks associated with changes in the value of financial instruments. Financial institutions offer this species arrangements with a similar purpose to their customers. Due to the wide financial opportunities in terms of distribution and attraction of material resources, banks, unlike other bidders, avoid real losses even if market prices do not play into the hands. By concluding two opposing contracts, the bank can easily cover the loss on one transaction with a profit on the other. Banks can also act as intermediaries, which help to find market participants with opposite desires.

Contract trading specifics

Trading forward contracts does not have a clear organized structure. Low competition in this segment of activity gives banks certain advantages in the form of the ability to impose their terms of partnership on the participants in the agreements. The profit that forward foreign exchange contracts can bring largely depends on the ability to predict the future value of the asset that is the basis of the agreement.

Banks win here, as they have access to a huge amount of information, professional analysts work in them. This leads to the formation of a huge and active supply market, the over-the-counter stock market. Forward contracts can be signed not only for a real amount of funds, but also for a conditional one. In the latter situation, after the implementation of the agreement, in the event of a difference in the contract and market value of the underlying asset, one of the parties pays the other only the price difference. There is no actual exchange of currencies, shares, securities and other financial instruments.

Advantages of contracts

A forward contract is a universal financial instrument that has certain advantages over others like it. The main advantage of the transaction lies in its individual nature, which allows for a very professional hedging of risks. Forward agreements do not provide for the withdrawal of additional funds, commissions. As for the privileges for banks, one can note the ability to set the value of the underlying asset and dictate their terms of agreement, since transactions are over-the-counter.

Cons of contracts

The main drawback of the contract is the lack of room for maneuvering. The obligation of the parties to fulfill their part of the agreement does not allow early termination of the contract or modify its terms. The absence of a secondary forward market makes resale of the contract simply impossible. This leads to a rather low liquidity of the instrument at a too high risk of non-performance by one of the parties of its obligations. The rigid trading framework forced market participants to look for loopholes. For example, today the practice of concluding contracts is very common, which provides for the possibility of terminating contracts by agreement of two parties or at the initiative of one, but with the subsequent payment of compensation.

What limits the number of participants in the forward market?

The number of participants in the forward market is strictly limited by a whole range of norms and standards. In order to purchase or sell a forward contract, traders must have credit line, high rating and stable financial contacts with a banking institution. The lack of forward transactions for participants is due to handicapped when choosing a partner bank, you have to accept the conditions that financial institutions dictate in fact. Certain difficulties are associated with the search for partners, because finding a side that is ready to take a reverse position is not so easy. This leads to insufficient popularity and activity of the forward contract market.

What is the difference between a futures contract and a forward contract

Future value contracts are forwards and futures. There is a significant difference between them. The forward is signed between the buyer and the seller, with the main purpose of the partnership being the actual delivery of the asset. Forward agreements are implemented within the OTC market, which leads to low instrument liquidity compared to futures. For example, it is very difficult to find a buyer for hundreds of tons of metal if it is no longer relevant for a particular plant.

Futures, in comparison with a forward, acts as a standardized contract, the main purpose of which is speculation. There is no talk of any real delivery here. Forwards and futures, despite their apparent similarity, are used for opposite purposes. The concept of "standardized" refers to a clear limitation of the quantity of goods by the conditions of the exchange. Only whole lots are allowed to trade. For example, a lot of copper is 2,500 pounds, and wheat is 136 tons. Options, forwards and futures are financial instruments, but the purpose of their existence is different, which determines the specifics of their application.

Forward currency contracts

The general characteristics of a forward contract of a currency type provide for a preliminary clarification of the terms of the partnership according to the following parameters:

1. Contract currency.
2. Transaction amount.
3. Exchange rate.
4. Payment date.

The duration of forward transactions can vary from 3 days to 5 years. The most common contract terms are 1, 3, 6 and 12 months from the date of conclusion of the contract. A forward currency contract inherently belongs to the category of banking transactions. It is not standardized and can be adapted to any situation. The market for forward transactions, the duration of which does not exceed 6 months in the dominant currency pairs, is very stable. The segment of the market in which transactions are concluded for 6 or more months is characterized by instability. Any implemented long-term transaction may cause significant fluctuations in exchange rates in the foreign exchange market.

Types of forward transactions

A forward contract can be presented in two formats:

1. A simple forward transaction, or an outright agreement. This is a single conversion transaction that has a distinct value date that is different from the spot date. The situation does not provide for a simultaneous reverse transaction. An agreement is concluded between the parties to provide a certain amount for a clearly established term and at a fixed rate. This format of transactions is widely used for insurance against exchange rate volatility.
2. Swap deals. This is a tandem of opposite conversion type transactions that have different value dates. Currency transactions between banks act as a kind of combination between the purchase and sale of one currency, but at completely different time intervals. A certain amount in the equivalent of one currency is simultaneously sold and bought on the market for a clearly defined period and vice versa.

Considering the question of what a forward contract is, it is worth clarifying the fact that these types of agreements use a specialized forward rate, which is fundamentally different from the spot rate. The reason lies in the difference between interest rates on deposits offered by countries. A special formula is used to calculate the forward rate.

an immediate, indissoluble and binding contract between the bank and its client;

for the purchase or sale of a certain amount of the specified foreign currency;

at the exchange rate fixed at the time of conclusion of the contract;

to perform (i.e., deliver the currency and pay for it) at a future time specified in the contract.

This time represents a specific date or the period between two specific dates.

It should be emphasized that after the conclusion of the forward foreign exchange contract becomes mandatory. The bank must insist that the client comply with it, because if this does not happen, then the bank is exposed to this currency.

Even if the client does not have foreign currency to sell to the bank, or he no longer needs the currency for which he has entered into a contract with the bank, the bank must insist on the execution of this contract. Therefore, the terms of a forward foreign exchange contract are stringent, and if the client cannot meet these conditions, the bank must order either "close" or "extend" the client's forward contract, it must not allow the client to leave without fulfilling its obligations.

A forward currency contract can be fixed or optional.

A fixed forward foreign exchange contract is a contract that must be settled on a specific date in the future. For example, a two-month forward fixed contract entered into on September 1 must be settled on November 1, that is, two months later.

An option forward contract at the choice of the client can be executed either:

at any time from the date of the conclusion of the contract to the specific date of its implementation;

during the period between two specific dates, both of which are in the future.

Option contracts are typically used to cover whole months, including the date of the probable payment, when the client is not sure of the exact date of buying or selling a currency.

The purpose of the option contract is to avoid having to renew the forward foreign exchange contract and extend it for several days, as this can be quite costly in terms of costs per day. Therefore, using option contracts, the client can cover his currency risk, even if he does not know exactly this date.

When a client enters into a forward option contract with their bank, it is necessary to set a bid or ask rate that the bank will quote. The bank will quote the rate most favorable to itself on any date during the option period.

This makes sense because the client has the option to demand the performance of the contract on any date during this period, and the bank must be sure that the client will not receive a favorable exchange rate at the bank's expense.

The rule for assigning a buy or sell rate for an option forward contract is as follows (Table 11):

Table 11

Bid and Ask Rate Rule Forward Currency Quote with Discounted Premium Bank Sell Rate Rate on the last day of the option period Rate on the first day of the option period Bank Buy Rate Rate on the first day of the option period Rate on the last day of the option period specific currency, but in numerous small transactions for which due/received dates are not specified, she can use option contracts without relying on spot rates.

The advantage of overlapping contracts is that:

the company can cover its currency risks with a forward contract;

Overlapping options are cheaper than a large number of small spot trades because the bank will offer a better bid and ask rate for larger contracts than for smaller ones.

systems accounting and the company's planning systems will be simplified because the exchange rates will be more uniform than if many spot transactions were executed.

A forward foreign exchange contract provides coverage of foreign exchange risks for the period between the dates of conclusion and execution of the contract.

Forward coverage is available for up to five years or even longer, but bid and ask rates are typically quoted at:

one month;

two month;

three months;

six months;

Twelve months.

Forward contracts are usually entered into on a calendar month basis.

The value date for a forward contract is the date on which the contract must be settled and the actual delivery and exchange of currencies must take place. It should be treated as the spot date plus the period covered by the forward contract.

The foreign exchange risk for the exporter or importer appears when a contract for the sale or purchase of goods or services is signed, and not at the time of issuing an invoice for payment. Therefore, forward coverage must be chosen by the importer/exporter at the time of concluding a trade contract.

In practice, foreign exchange dealers usually work with a forward margin, and its values ​​are given for the buying rate and the selling rate. As a rule, a direct quotation of currencies is used, at which the purchase rate must be lower than the sell rate, therefore, by the values ​​of the forward margin, you can immediately determine how the currency is quoted - at a premium or at a discount. If the values ​​of the forward margin for the buying rate of a currency are greater than its values ​​for the selling rate, then in order to fulfill the condition “the buying rate is less than the selling rate”, the forward margin must be subtracted from the spot rate, and, therefore, this currency is quoted at a discount. If the forward margin for the buy rate is less than that for the sell rate, its values ​​must be added to the spot rate, and, therefore, such a currency is quoted at a premium.

The basis for calculating forward rates is the theoretical break-even forward rate of currency A to currency B, calculated by the expression: 1 + iB x t/y 1 + iA x t/y

where Rc - spot rate;

iA - interest rate for currency A; iB - interest rate for currency B; t - term of the forward operation in days; y is the estimated number of days in a year. WHEN CARRYING OUT SUCH CALCULATIONS, IT SHOULD BE TAKEN INTO ACCOUNT THAT IN WORLD FINANCIAL PRACTICE THE ESTIMATED NUMBER OF DAYS IN EACH MONTH AND YEAR CAN BE DETERMINED BY THE FOLLOWING METHODS:
EACH MONTH IS EQUAL TO 30 DAYS FOR 360 DAYS A YEAR (CALCULATION METHOD "30/360");
THE DURATION OF EACH MONTH IS TAKEN ACCORDING TO THE CALENDAR WITH 360 DAYS A YEAR (FACT/360);
THE DURATION OF EACH MONTH IS TAKEN ACCORDING TO THE CALENDAR AT 365 DAYS A YEAR (FACT/365).
IN CALCULATIONS, AN APPROXIMATE THEORETICAL VALUE IS FREQUENTLY USED
FORWARD RATE FORWARD, EQUAL: R,^ = RC .
SO IF THE INTEREST RATE IN THE QUOTATION CURRENCY B IS GREATER THAN THE RATE IN THE QUOTE CURRENCY A, THE FORWARD RATE A/B WILL BE GREATER THAN THE SPOT RATE (CURRENCY A IS PRICED AT A PREMIUM). IF THE INTEREST RATE ON THE QUOTATION CURRENCY IS LESS THAN THE RATE ON THE QUOTE CURRENCY A THE FORWARD RATE A/B WILL BE LESS THAN THE SPOT RATE (CURRENCY A IS DISCOUNTED).
TO RECEIVE INCOME, BANKS BUY CURRENCY ON FORWARD CONDITIONS SO MUCH LOWER AND SELL SOMEWHERE HIGHER THE THEORETICAL FORWARD RATE.
COMBINED "SWAP" OPERATIONS TAKE A SPECIAL PLACE IN THE SYSTEM OF FURTHER CURRENCY TRANSACTIONS. COMPLEX TRANSACTIONS "SWAP" MAY INCLUDE:
TEMPORARY PURCHASE WITH SUBSEQUENT SALE GUARANTEE;
SIMULTANEOUS SECURITIES EXCHANGE OPERATION. A SWAP FOR THE PURPOSE OF EXTENDING THE TERM OF SALE OF A SECURITY AND PURCHASE OF ANOTHER WITH A LONGER PERIOD TO REPAIR;
OPERATION ON EXCHANGE OF NATIONAL CURRENCY FOR FOREIGN CURRENCY WITH OBLIGATION OF REVERSE EXCHANGE AFTER A CERTAIN PERIOD. CARRIED OUT USUALLY BETWEEN CENTRAL BANKS;
SALE OF CASH CURRENCY (SPOT) WITH A SIMULTANEOUS PURCHASE OF IT FOR A TERM (FORWARD) OR VICE VERSE;
DIFFERENCE IN INTEREST RATES FOR TWO CURRENCIES FOR THE SAME TERM.