Mean forward exchange rate
Allows the business to lock in an exchange rate for a trade that will occur at a future pre-agreed rate. Choose a rate which suits the business that will allow you to buy and sell in the future at a known rate. Manage and budget cash flow without worrying about FX volatility. Forward exchange contracts can be used as hedging mechanisms for a Spot exchange rate vs forward exchange rate. Spot exchange rate is the rate that applies to immediate exchange of currencies while the forward exchange rate is the rate determined today at which two currencies can be exchanged at some future date. There are two models used to forecast exchange rates: purchasing power parity and interest rate To understand interest rate parity, you should understand two key exchange rates: the “spot” rate and the “forward” rate. The spot rate is the current exchange rate, while the forward rate refers to the rate that a bank agrees to exchange one currency for another in the future.