Forward contracts: points to consider

Although there are advantages to locking into a certain exchange rate there are clear disadvantages to the idea, too.

Primary of these, of course, is that you can't take advantage of any positive changes in the exchange rate from your point of view, as you are locked in... this can be quite annoying at times if rates go the way you would have wanted them too if you weren't locked in.

Also it is for a fixed amount, and there is the chance for an outstanding exposure.

Also if there are things like dividends then there are thoughts to be had with regard to the spiralling amount of paperwork and the costs that are associated with this sort of thing.

What else to consider?

Well, it is hard to get future forward contracts long into the future at a decent price too, so there are a range of factors to consider!

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