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Nearby Terms

Cash Forward Contract

definition

Agreement between two foreign exchange traders in which a transaction involving a specified amount of currency will take place at some future date, as outlined within the terms of the contract. Cash forward contracts differ from futures contracts in that they are made between two foreign exchange investors as opposed to being made with a clearing firm. The two transacting parties are required to bear any credit risk the other party may have, something which is also not applicable to futures contracts. Additionally, buyers of cash forward contracts can avoid capital outflow to begin with as there is no requirement for marking to market with cash forward contracts. The price stated in a cash forward contract is stated on date of the trade, even though delivery is to be made at a future date. Also see forward contract