Foreign Currency Services
Option-Dated Forward Contract
What is an Option-Dated Forward Contract?
An Option-Dated Forward Contract is similar to a regular Forward Contract in all respects except that the owner of the contract can settle it at any time within a pre-set 30-day period. The total amount of the contract can be settled in increments within that period until the entire amount is delivered. Option-Dated Contracts are available in all commonly traded currencies.
What are the benefits?
An Option-Dated Forward Contract lets your company eliminate downside risk by setting a price today for a foreign exchange transaction at a future date.
This gives you all the advantages of regular Forward Contracts, plus the added flexibility of consolidating a number of small forward requirements into one larger contract which can be more convenient and cost-effective.
An example
Suppose that on January 2, your company believes it will have to buy the following U.S. Dollar amounts in the month of February:
| February 1 |
$300,000 US |
| February 10 |
$250,000 US |
| February 28 |
$450,000 US
----------------- |
| Total |
$1,000,000 US |
If you’re sure of the dates on which you will require each amount, you can enter into a single Forward Option Contract which allows you to fix the price for U.S. Dollars on January 2 and then take delivery of the U.S. Dollars on the days you have specified.
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For more information, contact a Relationship Manager at the Commercial Banking Centre nearest you.
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