Forward contract is the simplest financial derivative and a non-standardized agreement. It is mainly traded in the OTC market, and the trading conditions such as the quantity, quality, delivery time and delivery place of the underlying assets are determined by both parties through consultation.
Forward agreement is the basis of futures, options and swaps, which are financial derivatives developed on the basis of forward agreement.
Financial forward market refers to the market engaged in financial forward transactions.
Forward agreements mainly include forward currency agreements and forward interest rate agreements.
Forward currency agreement, that is, forward foreign exchange contract, refers to that when a foreign exchange transaction contract is concluded, both parties to the transaction do not need to receive and pay the corresponding currency, but agree to deliver and settle the currency at the agreed exchange rate (that is, forward exchange rate) at some future time.
Forward interest rate agreement is an interest rate forward contract, in which both parties agree to pay the difference between the agreed interest rate and the market interest rate at a specific time in the future.
That is, the discounted amount of the interest difference between the agreed interest rate and the reference interest rate will be paid by both parties on the future liquidation date according to the specified period and principal amount.
Generally speaking, the buyer of forward interest rate agreement pays the agreed interest rate to prevent the risk of interest rate rise; The buyer of the forward interest rate agreement pays the market interest rate to prevent the risk of interest rate decline.