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Currency forward contracts involve understanding exchange rates, with the domestic currency in the numerator and foreign currency in the denominator. For example, if 1 USD is equivalent to 1.3 AUD, the exchange rate would be written as AUD 1.3 over USD. In a currency forward contract, one party is long and another party is short, with an expiry date set for six months later. The exchange rate in a currency forward contract is calculated in a similar manner to regular exchange rates.
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