International finance , business and finance assignment help

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Nagbavb12

Business Finance

Description

Forward Contracts :

1-Definition

2- advantages and disadvantages

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Definition of forward contract
Forward contract is a customized market transaction where there is contractual obligation of two
parties to sell to or buy from the PNC a certain fixed amount of foreign currencies on future maturity
dates as can be predetermined by the exchange rate. The prices in the forward contract are established
by spot adjustments based on the rate of interest differential of the currencies of the two countries . The
contract is privately negotiated, no standardization in the agreement and the parties involved in the
transaction bear credit risk for each other.
Advantages of forward contract
It eliminates the risk of currencies as costs of foreign exchanges are established upf ront.
It establishes the various contracts that are able to match the cash flows of the organizations within a
specified country. This is always a requirement that ...


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