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in currency forward contracts underlined is obviously the currency rate or exchange rate to understand currency forwards you need to understand how the exchange rates are coated for example assume that you are an Australian and Australian dollar is your domestic currency and you want to trade Australian dollar against US dollar see if one u.s. dollar is equivalent to one point three Australian dollar then how they write the exchange rate they write the exchange rate in this manner they will put domestic currency in numerator and foreign currency in denominator aut 1.3 over USD this is domestic and this is foreign to make it simple to understand foreign currency is set at 1 and we see that how many Australian dollars we need to buy one foreign currency now see the exchange rate from the perspective of the currency forward contract so just like other contract this is one currency forward contract formed on 38 December one party is long another party is short expiry is six month 38 June 1
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