Foreign exchange contract

A foreign exchange contract is a legal arrangement in which the parties agree to transfer between them a certain amount of foreign exchange at a predetermine rate of exchange, and as of a predetermined date. These contracts are most commonly used when an organization buys from a foreign supplier, and wants to hedge against the risk of an unfavorable foreign exchange rate fluctuation before the payment is due. Speculators may also use these contracts, to attempt to profit from expected changes in exchange rates.