Forward contracts are a really good way of protecting yourself against currency fluctuations and taking advantage of good rates of exchange before you actually complete on a property for example.
A rate of exchange can be booked for anything from 8 days to 18 months in advance. This also makes it a useful tool for business planning as you can budget accordingly once you have a rate of exchange booked. A prime example of this is one of our clients who is based in Europe but has to pay their suppliers in Sterling. They have booked a rate for selling Euros for 12 months. Not only have they budgeted for those 12 months but they have also saved thousands as the rate of exchange has continued to go against them over the length of the contract.
Also, a forward contract can have an option put in it where the client can draw on the funds early between two specific dates. This provides the client with a large amount of flexibility so they can draw on the funds as and when they need them. This is ideal for the client who isn't sure of the date when they complete on a property or for the business who wants to book a rate now but still make payments from the contract to suppliers earlier than the maturity date. With an option the full balance doesn't actually have to be settled until the end date of the contract.
There are some restrictions on the forward contracts though as the total value needs to be over £20k or the equivalent in a foreign currency. In addition for Escape to fix a forward contract a deposit of 10% is required. This would need to arrive with us within 3 working days of us setting up the deal. The balance is then due by the maturity date or earlier if the contract has an option.
I hope this explains a bit more about forward contracts but if anyone has any questions just let me know on twitter or send me an email; dominic@escapecurrency.com
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