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Useful information

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• Glossary

A Forward Plus guarantees that you can hedge at a known worst case exchange rate, while benefiting from favourable spot rate movements.

Using a Forward Plus - an example

A company may win a contract to supply goods and have to import the raw materials from the US, paying in US Dollars.

In this case, the company may want to hedge the payment costs as a separate contract - as their budget for the payment costs could be undermined by a move in the exchange rate. This could have the effect of increasing the cost of the raw materials.

So, the company could arrange a Forward Plus based on a lower and upper exchange rate limit with the guaranteed worst case rate to protect the company's anticipated raw materials budget.

Accruals

An accrual forward is used in different circumstances.

It enables your company to accumulate a currency on a drip-feed basis at a rate that's attractive relative to the current forward market. If you cannot achieve the exchange rate you need to hit, for example, your accounting year budget rate through the outright forward market, an accrual forward could be the answer.