Forward Spread Agreement

Exchange Rate Agreement

Forward Exchange Agreement
Presented byAnushree Korde
Anurag Gour
Priyanka Khatri
Ashish Singh

Submitted To- Prof. Dharmendra

Sharma

Forward Spread
Agreement

Forward Spread
The price difference between the spot price
of a security and the forward price of the
same security taken at a specified interval.

Forward Spread
Agreement
A forward spread agreement (FSA) is an
agreement between two parties who wish to
protect themselves against future changes
in the spread, generally between London
interbank interest rates, for two different
currencies, one of which must be US
dollars.

Payoff Formula

The Fixed Rate is the rate at which the

contract is agreed.
The Reference Rate is typicallyEuribor.
is theday count fraction, i.e. the portion of
a year over which the rates are calculated,
using theday count convention used in the
money markets in the underlying currency.
For EUR and USD this is generally the
number of days divided by 360, for GBP it is
the number of days divided by 365 days.

Exchange Rate Agreement

Exchange Rate
AnExchange
Rate
between
twocurrenciesis the rate at which one
currency will be exchanged for another. It is
also regarded as the value of one countrys
currency in terms of another currency.

Exchange Rate Agreement

An exchange rate agreement (ERA) is a
transaction through which parties seek to
protect
themselves
against
future
movements in foreign exchange swap
spreads.

Exchange Rate Agreement

Advantages
Removes Speculation

Economic Stabilization

Promotes International Trade

Exchange
Agreement
Disadvantages

Fixed rates are inherently unstable

Loss of freedom in internal policy

Rate

Forward Exchange
Agreement

Forward Exchange
Agreement
A forward exchange agreement (FXA) is a
transaction through which parties seek to
protect
themselves
against
future
movements in foreign exchange swap
spreads

Forward Exchange
Agreement
It is a agreement whose
value at maturity is based on
difference b/w a forward
currency exchange rate on
the start date and the spot
rate at settlement.

Forward Exchange
Agreement
Advantages

They cater for a diverse type of commercial

and
financial
transactions
and both
importers and exporters can make use of it.

The
company
is
protected
against
unfavourableexchange rate fluctuations.

Forward Exchange
Agreement
Disadvantages

Once
a
company
has
covered a
transaction with a forward exchange
agreement, it cannot take advantage of
preferential exchange rate movements.