By definition, the time and amount of foreign exchange to be delivered are predetermined
under a forward contract and the customer is bound by this agreement.  So, theoretically, there should not be any variation and on the due date of the forward contract the customer will either deliver or take delivery of the fixed sum of foreign exchange agreed upon.  But, in practice, quite often the delivery under a forward contract may take place before or after the due date, or delivery of foreign exchange may not take place at all.  The bank generally agree to these variations provided the customer agrees to bear the loss, if any, that the bank may have to sustain on account of the variation. 

Execution of Forward Contracts

Let us now analyze the possibilities of the fate of a forward contract.  The foreign exchange may be delivered on the due date as per the forward contract.  Or, the delivery may take place earlier or later than the due date.  Alternatively the customer may request cancellation of the contract. This request for cancellation may be made on the due date, before the due date of later than the due date.  Yet another alternative is that the customer may request postponement of the date of delivery under the forward contract.  This request for postponement may be made on the due date, earlier than the due date or after the due date. 

Forward contract may end up in any of the following ways:
  1.  Delivery on the due date
  2.  Early delivery
  3.  Late delivery
  4.  Cancellation on the due date
  5.  Early cancellation
  6.  Late cancellation
  7.  Extension on the due date
  8.  Early extension
  9.  Late extension

Post a Comment