Forward foreign exchange deal

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Forward exchange transaction (including foreign exchange forward ; English foreign exchange forward or abbreviated FX forward ) is a forward contract with foreign currency as underlying . The foreign exchange spot business is a complementary term .


In a forward exchange transaction, the trading partners sell currency pairs , i.e. exchange a foreign currency for a domestic currency or two foreign currencies. The currency pairs each sold are only at a later date than the spot market to meet market futures, which already at trading the time of the fulfillment of ( date ) as well as the validity of the compliance rate ( forward rate ) and the amount ( contract size ) defined between trading partners and must be fulfilled on the fulfillment day regardless of the current price situation.


A forward exchange deal concluded on its own is called a forward exchange deal , outright or solo forward deal . If, on the other hand, the forward exchange transaction is combined with a spot exchange transaction or with a forward exchange transaction with a different maturity, this is a currency swap . About 45% of all foreign exchange transactions are in swaps, while outright transactions account for 15%. Forward foreign exchange transactions are traded over the counter worldwide , counterparties are mostly credit institutions . They are offered in all common currencies and terms of 1–12 months, sometimes even longer.

Forward exchange rate and spot exchange rate do not match, there is a difference between the two. The forward exchange rate depends on the spot rate of the same currency, the term of the transaction and the interest rate difference between the currencies concerned. The main reason is the different interest rates between Germany and abroad. The higher the interest rate difference, the higher the absolute rate differences between the forward exchange rate and the spot rate. These course differences are called a surcharge or a discount (in the technical language report or deport ); at the same time - extrapolated to the year - they form the swap rate . The swap rate is also called exchange rate hedging costs because it is to be borne by the market participants as transaction costs and as a risk premium for assuming the exchange rate risk .

  • In the case of volume quotations , the term deport is used when the forward exchange rate of a currency is below its spot rate. In this case, the comparable interest rates abroad are lower than at home.
  • A report (surcharge) is available for volume quotations if the forward exchange rate of a currency is above its spot rate. Then the domestic interest rate is lower than the foreign one.

The deport in the quantity quotation corresponds to a report in the price quotation and vice versa. The forward exchange rate is calculated accordingly from the spot exchange rate plus the report or minus the deport.

Legal bases

According to section 1 (11) sentence 4 no. 1 KWG , futures transactions are the purchase, swap or otherwise structured fixed or option transactions that are to be fulfilled with a time delay and whose value is derived directly or indirectly from the price or size of an underlying asset. The Directive 2004/39 / EC on markets in financial instruments (short financial markets directive or MiFID) of 21 April 2004 mentioned in Annex 1, Section C, point 4, the forward exchange contracts as "forward contracts in currencies." The Regulation (EC) no. 1287/2006 of 10 August 2006 does not explicitly mention the term of the forward contract, but describes it in Art. 38 para. 1c, after which the contract is standardized so "that in particular the price, the lot, the delivery date or other conditions are mainly determined by reference to regularly published prices, standard trade items or standard delivery dates ”. From Art. 38 (2) of this Ordinance, it can then be concluded, conversely , that mutual fulfillment of futures contracts is delayed by more than 2 trading days. EU law no longer seeks reference to a futures market, but chooses the negative selection of the "non-cash business".


According to the Federal Court of Justice , the particular danger of currency forwards is that - unlike cash transactions in which the investor must immediately use cash or take out a loan - the postponed fulfillment time leads to speculation on a favorable but uncertain development of the market price in the future which is intended to enable the termination of the term commitment without using one's own assets and without taking out a formal loan through a profitable liquidation transaction .

Liability of the futures

The game and betting objection provided for under civil law in Section 762 of the German Civil Code (BGB) means that the transactions affected by this do not result in any enforceable liability for the declaring part. The game or betting objection can only be made by natural persons , which is why the provision can be found in the BGB . In order to nevertheless create binding performance obligations for both parties to the contract, Section 37e of the WpHG provides that objections to games and differences are excluded in binding forward exchange transactions. It follows from this provision that forward exchange transactions can by all means be mere gambling or difference transactions; otherwise section 37e of the WpHG would not have been required. According to 37e sentence 2 WpHG, the objection to gaming or betting according to Section 762 of the German Civil Code (BGB) cannot be asserted if at least one contractual partner in financial futures is a company that conducts financial futures with permission.

It is now essential that investment services companies inform the consumer about the special risks of financial futures transactions before they are concluded. However, if this information is not provided or not provided correctly, the legal consequence is no longer the non-binding nature of the forward transactions, but a claim for damages by the consumer, which in the opinion of the legislator represents sufficient protection for the consumer. However, the claim for damages is now punished as a violation of both statutory secondary obligations from § 31 , § 32 WpHG and pre-contractual protection obligations from §§ 31, 32 WpHG and can lead to a claim for damages by the customer against the investment services company according to § 280 (1) BGB . If a company that is obliged to provide information is the contractual partner of the consumer, the objection according to § 762 BGB is excluded (§ 37e WpHG). If these legal requirements are met by the trading parties, the financial futures business capability required for currency forwards is available.


Forward foreign exchange transactions can be used for speculation or arbitrage as well as hedging . In hedging, market participants close an open currency position by entering into a congruent currency forwards. For example, if the exporter has an export claim in US dollars with a 3-month term, he concludes the corresponding amount of the claim with a credit institution as a contract size with a 3-month term in the form of a forward exchange sale. On the due date of his claim , he receives from the forward currency sale from the bank the US dollar amount agreed on the transaction date at the forward currency rate set regardless of the current rate development and pays the equivalent value. The exporter is therefore relieved of the exchange rate risk, but not the importer's creditworthiness risk and also not the country risk . Both risks can be countered with export credit insurance . The situation is reversed for the importer . In this way, exporters and importers protect themselves against exchange rate risks that they would have to bear without a forward exchange transaction. In this way, all other currency receivables and payables in international credit transactions , dividend or interest receivables or payables can be hedged. Foreign exchange swaps are part of arbitrage if both trades are concluded at the same time and the rates are therefore safe. This exploitation of the interest rate differentials is called interest rate difference arbitrage ; it is worthwhile until the swap rate to be paid by the arbitrageur balances the interest rate difference. It is speculation when forward exchange transactions are concluded without a commercial background in order to achieve a price gain. This includes in particular short selling , when a speculator makes a forward currency sale without being in possession of the foreign currency sold on the trading day. He has time to close out his sales obligation by the due date by means of a forward currency purchase or a spot purchase . Foreign exchange swaps are therefore speculative if the countertrade is not concluded at the same time. Then it is (so-called can not be fulfilled currency forwards English non-deliverable forward contracts ) where the contracting parties only the resulting gain or loss offset each other. Here it becomes clear that speculators are not interested in the underlying at all. Forward foreign exchange transactions Absichernd used filters within the risk management is a risk reduction is.

Special rules for credit institutions

Credit institutions conclude most forward exchange transactions with one another in interbank trading and with non-banks . According to Article 286 (2a) of the Capital Adequacy Ordinance, they have to subject their business partners - called counterparty in the ordinance - to a creditworthiness check with regard to their creditworthiness . Credit decisions must lead to the granting of internal credit lines for counterparties in order to limit the business volume for each individual counterparty. For forward exchange transactions, bank-internal credit lines are to be granted as pre-settlement limits, in which the replacement costs of the contracts are to be booked. The particular risk for banks lies in the term of the forward exchange transaction, because the market value of the forward transaction can change during this term . The counterparty is at risk of default if the forward transaction has a positive replacement value and, from the point of view of the bank, a claim against the counterparty arises due to market developments .


Forward exchange transactions are considered pending transactions for accounting purposes if the balance sheet date is between the trading day and the settlement date. Under German commercial law , pending transactions are only to be taken into account in the event of an impending loss in the form of provisions ( Section 249 (1) sentence 1 HGB ). According to IAS 39.AG55, the trading day is the day on which the reporting company entered into the obligation to buy or sell an asset. Settlement date is the day on which an asset is delivered to or by the accounting company (IAS 39.AG56). According to IFRS , pending currency forwards are to be accounted for on the trading day as financial assets or financial liabilities because the company has been bearing the market price risk since then . However, the symmetrical futures contract has the value zero on the trading day because rights and obligations still balance each other out. However, the market value of these transactions can change with increasing maturity . The expected replacement costs at banks are accounted for on the basis of the credit valuation adjustment in accordance with the Capital Adequacy Ordinance (CRR) in accordance with Art. 381 et seq. CRR.

The credit institution accounting regulation stipulates in § 36 sentences 1 and 2 RechKredV that for credit institutions a list of the types of forward transactions that have not yet been settled must be included in the annex , which contain a settlement risk and other risks. Here, the forward transactions are divided into foreign currency , interest rate and price risk-related .

Individual evidence

  1. Thomas Zwirner, Foreign exchange risk, companies and capital market , 1989, p. 19
  2. ^ BIS, Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2010 , 2010, p. 7
  3. Wolfgang Grundmann / Rudolf Rathner, Banking, Accounting and Control, Economics and Social Studies , 2015, p. 199
  4. BGHZ 103, 84, 87
  5. BGHZ 150, 164, 169
  6. Dorothee Einsele, Banking and Capital Markets Law: National and International Banking Transactions , 2006, p. 395
  7. Klaus Stocker, Management of international financial and currency risks , 2013, p. 214
  8. Burkhard Vamholt: Credit Risk Management , 1997, p. 141.
  9. Beate Kremin-Buch / Fritz Unger / Hartmut Walz (eds.), International Accounting - Aspects and Development Perspectives , Volume 4, 2003, p. 57