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Locking In a Good Deal: The Benefits of a Forward Exchange Contract

By Mike Monson, CanadianFOREX

You've done it! You've found the car of your dreams, the Canadian dollar is at par with the US and you have negotiated a great price. Now how can you ensure that this is still a good price when you pay for it in a month's time?

Fluctuating exchange rates can make a planned purchase more expensive and turn a great deal into a bad experience. Over the course of a month the Canadian dollar has been known to fluctuate 4, 6 and even 10% against the US! This is why it is prudent for people that are buying abroad to use a forward contract to lock in the price of a purchase and remove the risk of fluctuating currency prices.

A forward exchange contract (FEC) allows you to lock in an exchange rate today without having to pay for the purchased currency until a future date. It is easy to see the clear benefits of using a FEC by seeing the graph below. Typically you will be required to pay a deposit of 5% of the total amount upfront, with the additional 95% to be paid at a future specified date. Using an FEC will give you the piece of mind of knowing exactly how much you will pay for your purchase at a future point in time.

For more information or to set up your FREE foreign exchange account, contact a representative at CanadianFOREX.

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