Deliverable foreign exchange forward. Types of forward transactions. Main characteristics of a forward contract

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

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

What are the features of concluding a forward contract?

The conclusion of a forward contract does not include any costs, except for those commissions that will be spent on the transaction, if it is done with the help of an intermediary.

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

The conditions of the forward contract stipulate the obligation of performance, but despite this, the counterparties are still not 100% insured against 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 entering into a transaction, you must make sure of the solvency and reputation of both parties.

Also, a forward contract can be concluded, in which the goal is to play on the difference in the value of the asset rate. The analyst making a purchase is looking for an increase in the price of the underlying assets, and the analyst making a sale is looking for a fall in the price of the underlying assets.

For its main purpose, a forward contract is considered an individual type of contract. For this reason, other forward contract markets for the most part are underdeveloped or underdeveloped. An exception may be forward.

When signing a forward contract, both parties negotiate the price of the concluded transaction. This price is referred to as the delivery price, after which it remains constant throughout the duration of the forward contract.

With the advent of the forward contract, the concept of a specific forward price emerged. For each time frame, the forward price, for the current underlying asset, is the delivery price noted in the contract signed to date.

Legal specificity 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 the contract assumes the real delivery of any product, as the final result. Since the object of the forward, serves as a real product, that is, things at your disposal. With all this, a reference to the validity of the goods should not infringe on the seller's right to conclude a contract for the sale of goods that will be manufactured or purchased by the person selling the goods in the future.

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

Forward is a legitimate profit insurance opportunity.

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

• timing
• total quantity of goods
• its price, which is not made before the specified delivery date.

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

The cost of execution for a forward transaction (which is determined for the period of its implementation) is a certain average exchange price indicator for a given commodity.

The forward price is the result of the participants' assessment of all possible factors affecting the market, and all further prospects for the development of accompanying events in 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.

With regard to delivery contracts, delivery for them is calculated initially, and mutual settlement is made by paying one of the parties the resulting difference in the value of the goods or the previously established amount, based on the terms of the contract.

When working with settlement types of contracts, delivery of goods (i.e. 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.

Determination of the forward price

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

The first one is that a 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 arbitration method. According to the provisions of the primary concept, all participants in economic relations try to take into account and consider all the information they have in relation to the upcoming conjuncture and establish the price of the future spot.

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

The arbitration approach is based on the following provision: on the basis of a financial decision, the investor must be indifferent to the receipt of the underlying asset on the spot market at the present time or under a forward contract in the future.

During the duration of the forward contract, the earnings on the shares will either be paid or not.

If during the term of the contract, profit is accrued per share, then the forward price must be changed 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 means that the depositor is obliged to receive equal income from the placement of funds at a certain percentage without significant risk in foreign currency, and it is obligatory.

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 at a predetermined date at a specific rate. In this case, the rate will be indicated in the agreement.

With forward trades, you can buy and sell currencies in the future without worrying about potential price spikes. 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 trade:

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

Forward transactions are great for international companies as they provide protection against unforeseen monetary losses. But in recent years, the number of private investors using this type of contracts has been growing in order to protect themselves in large foreign purchases, for example, real estate, or, if necessary, pay for tuition, long business trips, etc. And more and more often, traders in the financial markets use this tool in order to make a profit.

The main advantage of working with a currency forward, as opposed to trading currency pairs, is the absence of swaps. An excellent option for long-term trades, because you don't have to pay for daily position transfers. Taking into account the duration of the transaction for several months - significant savings in the trader's deposit!

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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 disadvantage - regardless of the value of the price, none of the parties can refuse to fulfill the contract.

Forward transactions are classified as forward transactions. This 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 currency. In order to mitigate risks, the firm resorts to hedging and enters into a forward contract for EUR for 2 months.

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

How does a futures contract differ from a forward contract?

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

Some more differences between forwards and futures:

• a forward transaction allows the parties to independently determine the volume of delivery, in futures, the contract volume 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 quality is set by the exchange;
• the forward has limited liquidity, while the futures are considered highly liquid (although this indicator varies depending on the underlying asset).

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

Types of transactions

In addition to the type of transactions described above, there are others. For example, urgent or forward transactions. In the process of such transactions, the acquisition or sale of a monetary unit takes place at the rate set at the time of the conclusion of the agreement. In this case, when carrying out a forward transaction, the period for which it is concluded is immediately stipulated, and at the end of which the currency is transferred. Swap transactions are purchases of currency 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 foreign exchange 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 off-exchange contract. As a rule, such transactions are carried out with the aim of making the actual sale or purchase of the corresponding currency units with delivery in the future at a time interval agreed by the parties. In addition, forwards can be concluded 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. By the way, it will be emphasized that for transactions such as forward, currency buying and selling rates are fixed. In other words, the forward market is bilateral. It is characterized 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 traded exclusively on the exchange. In this case, it is imperative to observe certain rules that are identical for all bidders. It should be noted that when organizing a currency futures, both the seller and the buyer enter into appropriate agreements with the exchange, and transactions are settled through the clearinghouse of the trading platform. This procedure guarantees the participants in the 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 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 deal

A feature of an option is that it is not a firm, or mandatory, futures trade, as is the case with currency forwards and futures. In practice, it looks like this. The option buyer has the option of either exercising his right and executing the transaction in accordance with the terms of the option agreement, or leaving the contract unfulfilled. Provided that the buyer of the option still decides to exercise the contract, the seller receives a bonus reward, which will remain with him regardless of the fact of exercising the option.

The advantage of the option over forward transactions and futures is the ability to hedge 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 foreign exchange futures is to use the general principle: according to the concluded agreement, the sale or purchase of a certain amount of an asset at a set price is made at a predetermined time. The main difference between traditional and foreign exchange futures is that foreign exchange futures are not traded centrally. Similar transactions are concluded on various trading platforms in the United States of America, as well as outside this state. It will be worthwhile 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. Foreign exchange transactions under such contracts outside the American jurisdiction are also legal, since they are subject to a number of restrictions and certain rules. It is also worth paying attention to the fact that, unlike the spot foreign exchange market, absolutely all foreign exchange futures are quoted against the US dollar.

Areas of use of currency futures

The two main uses for a currency pair futures are speculation and hedging. Using 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 risks caused by rapid price changes. This, in turn, is reflected in sales revenue. Let's give an example. A trader that owns a retail chain in the EU would like 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 network.

In addition, it should be noted that when using hedging, the trader has a choice 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, when working with futures, there is no such right. Futures contracts are fixed in size and due date.

Payment for a forward transaction is made upon the expiration of its implementation period. These transactions are settled every day. It should also be noted that using hedging of currency risks by futures, a trader has the opportunity to revalue his own positions as often as necessary. But when using forwards, this is not possible, and you have to wait for the expiration of the deal.

There are a huge number of financial instruments in the economy. Let's talk about one of them. A forward contract is, in fact, an agreement concluded between two parties, which describes in detail the purchase or sale of a specific amount of an underlying asset at a clearly established cost, with the timing of the agreement in the future inclusive. The signing of this type of contract means that one of the parties to the transaction, the seller, undertakes to deliver a specific amount of underlying assets to the number specified in the contract, but which is distant in relation to the date of signing the contract. The other party, the buyer, undertakes to take delivery within the agreed time frame.

Main characteristics of contracts

The date on which the forward contract is signed is referred to as the agreement date. The number that is determined by the parties as the time of implementation of the agreement is called the date of payment or settlement. The time period from the moment of signing the contract until the moment of settlement is called forward. Agreements can be concluded for any time frame and amount of funds, it all depends solely on the needs of each of the parties. The most effective are considered to be forward transactions, the cost of which starts at $ 5 million. In the framework of the international derivatives market, the contract amounts vary from 1 to 100 million. Each of the parameters - the date of signing the contract and the date of settlement, the transaction amount and the volume of the underlying asset - are determined purely on an individual basis. There are no restrictions on this issue.

Risk hedging

Due to the preliminary determination of the contract value, it is possible to hedge the risks. By setting the price of a financial instrument, both the seller and the buyer are completely freed for the forward period from the risk of changes in market value. The transaction does not provide an opportunity to acquire 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 - 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 forward deals. It is the obligation to fulfill its part of the agreement that underlies them; without this feature, the instrument would cease to exist as a direction for hedging risks.

History

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 have become especially popular, the main subject of which was precisely financial instruments. The financial forward market is essentially over-the-counter. Exchange trading is unacceptable due to the individuality of the conditions for concluding agreements. Any business entities can formally participate in contract trading. In practice, the choice of a partner is carried out very carefully and carefully, as it reduces the risk of delivery disruption.

Forward market participants

For the most part, large banks and pension funds, insurance companies, which have a positive reputation, are parties to the agreements. Certain categories of transactions are subject to certain restrictions. An example is a forward credit transaction 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 the global 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 foreign currency to hedge their own risks associated with changes in the value of financial instruments. Financial institutions offer this type of arrangement with a similar purpose to their clients. Due to the wide financial opportunities in the aspect of distribution and attraction of material resources, banks, unlike other trading participants, avoid real losses even if market prices do not play into their hands. By entering into two opposite contracts, the bank manages to easily cover the loss on one deal with the profit on the other. Banks can also act as intermediaries who help to find market participants with opposite desires.

Specificity of contract trading

Trading forward contracts is not structured well. 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 agreements. The profit that foreign exchange forward contracts can generate depends in large part on the ability to predict the future value of the asset, which is the basis of the agreement.

Banks benefit here because 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 OTC stock market. Forward contracts can be signed not only for the real amount of funds, but also for the conditional one. In the latter situation, after the agreement is implemented, in the event of a difference in the contractual 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.

Pros 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 character, 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, we can note the ability to set the value of the underlying asset and dictate the terms of the agreement, since the transactions are over-the-counter.

Cons of contracts

The main disadvantage 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 terminating the contract or modifying its terms before the deadline. The absence of a secondary forward market makes it simply impossible to resell the contract. This leads to a sufficiently low liquidity of the instrument with too high a risk that one of the parties will default on 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 on the initiative of one, but with 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 set of norms and standards. In order to buy or sell a forward contract, traders must have a line of credit, a high rating, and stable financial contacts with a banking institution. The lack of forward transactions for participants is due to limited opportunities when choosing a partner bank; they have to accept the conditions that are dictated by financial institutions in fact. Certain difficulties are associated with the search for partners, because finding a side that is ready to take the opposite position is not so easy. This leads to insufficient popularity and activity of the forward contracts market.

What is the difference between futures and forward contracts

Future value contracts are forward and futures contracts. The difference between them is significant. 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 carried out within the OTC market, which leads to a low liquidity of the instrument in comparison with 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.

Compared to a forward, futures act as a standardized contract, the main purpose of which is speculation. There is no question of any real delivery here. Forwards and futures, despite the apparent similarity, are used for opposite purposes. The term "standardized" means a clear limitation of the quantity of goods by the terms of the exchange. Only whole lots are allowed to trade. For example, a lot of copper is 2500 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 foreign exchange contracts

The general characteristics of a forward contract of a currency type provides for a preliminary clarification of the terms of partnership in the following parameters:

1. Contract currency.
2. The amount of the transaction.
3. Exchange rate.
4. Payment date.

The duration of forward transactions can vary from 3 days to 5 years. The most common terms for contracts are 1, 3, 6 and 12 months from the date of the contract. A forward foreign exchange contract is inherently classified as banking. It is not standardized and can be adapted to suit 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 months or more is unstable. Any realized long-term transaction can cause significant fluctuations in the exchange rates in the foreign exchange market.

Types of forward transactions

A forward contract can be presented in two formats:

1. Simple Forward Deal, or Outright Agreement. This is a single conversion transaction that has a distinct value date that differs from the spot date. The situation does not provide for a simultaneous reverse transaction. An agreement is concluded between the parties on the provision of 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 trades. This is a tandem of opposite conversion deals that have different value dates. Currency transactions between banks act as a kind of combination between buying and selling one currency, but at completely different time intervals. A certain amount in the equivalent of one currency is both sold and bought on the market for a fixed 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 differences between the interest rates on deposits that countries offer. A specialized formula is used to calculate the forward rate.

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

to buy or sell a certain amount of specified foreign currency;

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

to perform (that is, delivery of currency and its payment) in the future time specified in the contract.

This time is either a specific date or a period between two specific dates.

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

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

A forward foreign exchange contract can be either fixed or optional.

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

An option forward contract, at the customer's option, 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 commonly used to cover entire months, including the due date, when the client is unsure of the exact date when the currency was bought or sold.

The purpose of the option contract is to avoid having to renew the forward foreign exchange contract and renew 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 his bank, it is necessary to establish a buy or sell rate that the bank will quote. The bank will quote the rate most favorable for itself on any date during the option period.

This makes sense since the client has the ability to demand the execution of the contract at any date during this period, and the bank must be sure that the client does not receive a favorable rate from the bank.

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

Table 11

Rule for assigning buy and sell rates Forward currency quotation with a premium at a discount Bank selling rate Rate on the last day of the option period Rate on the first day of the option period Banking rate on the purchase rate Rate on the first day of the option period Rate on the last day of the option period If the company foresees a large amount of expenses in specific currency, but in numerous small transactions for which the dates of payment / receipt are not determined, it can use option contracts without relying on spot rates.

The advantages of overlapping contracts are as follows:

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 better buy and sell rates for larger contracts than for smaller ones;

the company's accounting and planning systems will be simplified as 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 the 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 fulfilled and the actual delivery and exchange of currencies must take place. It should be considered as the spot date plus the period covered by this forward contract.

Foreign exchange risk for an exporter or importer arises when a contract is signed for the sale or purchase of goods or services, and not when the invoice is issued for payment. Therefore, the forward cover must be selected by the importer / exporter at the time of entering into a trade contract.

In practice, foreign exchange dealers usually work with forward margins, and its values \u200b\u200bare given for the buying and selling rates. As a rule, direct currency quotation is used, in which the buying rate should be lower than the selling rate, therefore, by the values \u200b\u200bof the forward margin, you can immediately determine how the currency is quoted - with a premium or with a discount. If the values \u200b\u200bof the forward margin for the buying rate of the currency are higher than the values \u200b\u200bfor the selling rate, then 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, it must be added to the spot rate, and therefore the 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 is the spot rate;

iA - interest rate for currency A; iB - interest rate for currency B; t is the forward transaction term in days; y is the estimated number of days in a year. WHEN CARRYING OUT SIMILAR CALCULATIONS, IT SHOULD BE CONSIDERED THAT IN WORLD FINANCIAL PRACTICE, THE ESTIMATED NUMBER OF DAYS IN EACH MONTH AND YEAR MAY BE DETERMINED BY THE FOLLOWING WAYS:
EVERY MONTH IS 30 DAYS AT 360 DAYS A YEAR (CALCULATION METHOD "30/360");
THE DURATION OF EACH MONTH IS TAKEN ON THE CALENDAR AT 360 DAYS A YEAR (FACT / 360);
THE DURATION OF EACH MONTH IS TAKEN ON THE CALENDAR AT 365 DAYS A YEAR (FACT / 365).
IN THE CALCULATIONS, AN APPROXIMATE VALUE OF THEORETICAL
FORWARD COURSE FORWARD, EQUAL: R, ^ \u003d RC.
THUS, IF THE INTEREST RATE FOR CURRENCY IS GREATER THAN THE RATE FOR CURRENCY A, FORWARD RATE A / B WILL BE BIGGER RATE OF SPOT (CURRENCY A IS LISTED WITH A PREMIUM). IF THE INTEREST RATE ON THE CURRENCY IS LESS THAN THE RATE ON THE CURRENCY A, FORWARD RATE A / B WILL BE LESS THAN THE SPOT RATE (CURRENCY A IS LISTED WITH DISCOUNT).
TO RECEIVE INCOME, BANKS BUY CURRENCY ON FORWARD TERMS NOT MUCH BELOW, BUT SELL A LITTLE HIGHER THAN THEORETICAL FORWARD RATE.
A SPECIAL PLACE IN THE SYSTEM OF FURTHER FOREIGN EXCHANGE TRANSACTIONS IS THE COMBINED SWAP OPERATIONS. INTEGRATED SWAP OPERATIONS MAY INCLUDE:
TIME PURCHASE WITH FOLLOW-SALE GUARANTEE;
SIMULTANEOUS SECURITIES EXCHANGE OPERATION. SWAP WITH THE PURPOSE OF EXTENDING THE SALE OF SECURITIES AND THE PURCHASE OF ANOTHER PURCHASE WITH A LONGER PERIOD TO MATURITY;
AN OPERATION TO EXCHANGE A NATIONAL CURRENCY FOR A FOREIGN CURRENCY WITH THE OBLIGATION OF BACK EXCHANGE AFTER A SPECIFIC PERIOD. PERFORMED USUALLY BETWEEN CENTRAL BANKS;
SELLING CURRENCY (SPOT) WITH A SIMULTANEOUS PURCHASE OF IT FOR A TIME (FORWARD) OR VERSA;
DIFFERENCE IN INTEREST RATES FOR TWO CURRENCIES FOR ONE AND THE SAME TERM.