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A currency forward contract is an agreement between two parties to exchange a fixed amount of one currency for another at a future date. The exchange rate is fixed at the time of signing the agreement. Forward contracts can be outright or non-deliverable. Outright forwards involve actual currency exchange, while non-deliverable forwards are settled in a single currency like the US dollar. They can be used for speculation or risk management. In this tutorial, outright forward contracts are discussed using an example of a US company expecting a payment in British pounds in 90 days. The current spot rate is $1.60 per pound.
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