What is a forward exchange rate? When does delivery occur on a 90-day forward contract?
What will be an ideal response?
The forward exchange rate is a price quoted today for the exchange of currencies at the maturity of the forward contract. To find the delivery date for a 90-day forward contract, one first finds the spot value date, which is typically two business days in the future relative to the day that the contract is made. Then, to find the forward value date, one goes to the calendar date in three months corresponding to the calendar date of the spot value date. If that calendar date in three months is a legitimate business day in both countries, that date is the forward value date. If the banks in one of the countries are closed on that date, because it is a weekend or holiday, the forward value date is the next available business day without going out of the month. If going forward in time would take you out of the month, you go backward in time. This rule is followed except when the spot value day is the last business day of the current month, in which case the forward value day is the last business day in both countries in three months (this is referred to as the end-end rule).
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