ABSTRACT
Forward exchange markets allow the purchase or sale of foreign exchange today for delivery and payment at a fixed date in the future. Contracts typically have maturities of 30, 60, or 90 days to match payment dates for export sales and the maturities of short-term money market assets such as Treasury bills, commercial paper, and certificates of deposits (CDs). If, for example, a US importer is committed to pay DM 500,000 for German exports in 90 days, a forward purchase of DM is a convenient way to avoid the possibility that the currency may appreciate over that time, which would impose higher dollar costs on the importer.
