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Currency forward contracts involve understanding exchange rates, with the domestic currency in the numerator and the foreign currency in the denominator. For example, if 1 USD equals 1.3 AUD, the exchange rate is written as AUD 1.3 over USD. In a currency forward contract, one party is long and the other is short, with an expiry date set for six months after the contract is formed. In this way, the exchange rate is viewed in the context of the currency forward contract.
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