Forward window contract definition
/What is a Forward Window Contract?
A forward window contract is a contract under which an entity agrees to purchase a fixed amount of a foreign currency within a range of settlement dates, and at a predetermined rate. The purchase can be made on any date within the window. This contract is slightly more expensive than a standard forward exchange contract, but makes it much easier to match incoming customer payments to the terms of the contract.
Example of a Forward Window Contract
For example, a customer should pay an American company 60,000 Euros in 60 days, so the American company wants to hedge it with a forward exchange contract to sell 60,000 Euros to a bank in 60 days at an exchange rate of 1 Euro per 1 U.S. Dollar. However, the customer may not pay in precisely 60 days, so the American company enters into a forward window contract; this gives it a broader span of time over which to pay the 60,000 Euros to the bank.