Forward contracts for international payments

What is a forward contract?

A forward contract aims to take advantage of a favourable exchange rate by locking it in at a lower point now, while the actual transfer happens at a later date.

Forward contracts remove the uncertainty around FX exchange, helping businesses plan ahead. However, it’s important to remember that the exchange rate could improve further, in which case any benefit will be lost as they will be locked into the agreed rate.

Let’s look at the case study below to see how this would work in practice.

Case study: A company wants to set a fixed now price to buy products from overseas in the future

Memphis Football.jpg

Business issue: Locking in a set future exchange rate

Business goal: Using a forward contract to reduce future currency risk

Memphis Royal Football Club (MRFC) agreed to buy two new players from a British club for a transfer fee of £10m (GBP) each but did not need to make the payment for three months. MRFC was concerned that the USD to GBP exchange rate might move against them during that time, and decided to fix the exchange rate in advance using a forward contract.

This allowed MRFC to know exactly how much the players would cost on the day they needed to pay for them. MRFC fixed a rate of exactly $1.5 to £1 to buy $30m worth of players. In the three months before the payment was due, the exchange rate moved between 1.47 and 1.54. On the day the payment was due, the rate was 1.53.

If MRFC had waited until the day the payment was due and exchanged GBP to USD at the prevailing rate, the players would have cost an extra $60,000.

Where can I find out more about forward contracts? 

To find a provider who offers forward contracts, simply conduct our comparison search on our site and then select a broker who deals in the two currencies you wish to manage. Typically, online-only providers do not offer these products.

Money Transfer Comparison

Results are ranked in order of the best overall deal, taking into account transfer times, rates, fees, and customer service.

Money Transfer Reviews

Use our Currency Tools

Currency Volatility Tool - assess the impact of currency risk

Currency Analysis Tool - conduct an audit of historical transactions

Email us:

Call us:

+44 207 871 5565 (UK)
Mon-Fri 10am-6pm (UTC)

+1 212 600 8553 (US)
Mon-Fri 10am-6pm (EDT) is an fx money comparison site for international money transfer and to compare rates from currency brokers for sending money abroad. The website and the information provided is for informational purposes only and does not constitute an offer, solicitation or advice on any financial service or transaction. None of the information presented is intended to form the basis for any investment decision, and no specific recommendations are intended.  FXC Group Ltd and FX Compared Ltd does not provide any guarantees of any data from third parties listed on this website. FX compared Ltd expressly disclaims any and all responsibility for any direct or consequential loss or damage of any kind whatsoever arising directly or indirectly from (i) any error, omission or inaccuracy in any such information or (ii) any action resulting therefrom.