A forward exchange contract is a financial agreement between an importer and an exporter that allows them to exchange a specified amount of the importer’s currency for the exporter’s currency at a predetermined exchange rate. This exchange is made on the date when the payment for export is due, using existing currency exchange rate when the contract for sale is made. By entering into a forward exchange contract, both parties can protect themselves from any financial loss resulting due to changes in exchange rate. A forward contract specifies the sales price in the form of how much of the importer's currency is needed to satisfy the final sales price with the exporter’s currency.
Forward exchange contracts are typically created by the exporter’s financial institution and play a crucial role in facilitating provides essential services such as foreign currency exchange, export financing
, and risk management
solutions to importers and exporters1