Forward exchange contracts (discussed in the previous chapter) are widely used by business firms to hedge against volatile adverse exchange rates, Business firms enter in Lo a forward contract (with authorized dealers of the forward exchange market, notionally banks) to buy or sell foreign currency in exchange for Horne currency, normally at a specifics future date, at a redetermined exchange conversion rate (known as forward rate) Indian’ importer, who wishes to avoid foreign exchange risk, as to purchase the required foreign currency (say US $ British i.) forward (for a period, say 90 days. when the payments are to be ad Likewise, an Indian exporter’ to US can enter into a forward exchange contract to sell us dollar to avoid the risk of depreciation of the dollar when he receives payment on maturity (say, 90 days hence). Forward exchange contracts enable firms o cover the foreign exchange risk. They are ideal,suited for hedging transaction exposure. A typical forward contract specifies he (I) .correct amount, (U) forward exchange rate, (W) parties to the contract. (Iv) the specified date of delivery, of foreign u involved in exchange and, (vi) terms and conditions for cancellation.