Currency Forward

A currency forward — also called a foreign exchange forward or FX forward — is a customised, over-the-counter (OTC) derivative contract between two parties to exchange a specified amount of one currency for another at a pre-agreed exchange rate (the forward rate) on a specified future date, regardless of the spot exchange rate prevailing on the settlement date. Currency forwards are the most widely used hedging instrument for managing foreign exchange risk by exporters, importers, and companies with foreign currency-denominated revenues, costs, or borrowings. In India, authorised dealer banks offer currency forward contracts to eligible corporate clients under RBI guidelines. The forward rate is determined by the spot rate adjusted for the interest rate differential between the two currencies (covered interest rate parity). For companies listed on Indian exchanges and tracked by investors on Ventura Securities — particularly IT exporters, pharmaceutical companies, and commodity importers — currency forward hedging positions and hedge ratios are important disclosures that directly affect earnings predictability and the sensitivity of financials to INR/USD movements.