Statrys Forex 101: What is a Forward Rate?

In this episode of Statrys Forex 101, Jonathan Cusimano, Head of FX at Statrys, explains what a forward rate is and how businesses use it to manage currency risk. A forward rate is the exchange rate agreed today for a currency transaction that will take place at a future date, helping companies protect themselves from unfavourable market movements.

Jonathan also breaks down how forward rates are determined, using real business examples to show how forward contracts work in practice. He explains concepts such as forward premiums and discounts, and why interest rate differences between currencies matter when pricing future FX transactions.

Key Takeaways

• What a forward rate is and how it differs from a spot rate
• How forward rates are calculated using the spot rate and interest rate differentials
• The meaning of forward premiums and forward discounts
• How businesses use FX forwards to lock in rates and reduce currency risk
• A practical example of using a forward contract in international trade