The forward exchange rate is the agreed upon rate at which two currencies will be exchanged in the future.
A crucial concept in finance, the forward exchange contract has a defined term spanning from the date it is drafted to its maturity date, usually two business days. It establishes the future exchange rate between two currencies. For instance, if one party agrees to sell a currency at a higher rate than the current market price, it is a forward premium. Understanding this can aid in managing currency risks and making informed financial decisions.
