Contingent Forward Contract In Houston
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FAQ
While a forward commitment contains an obligation to carry out the transaction as planned, a contingent claim contains the right to carry out the transaction but not the obligation. As a result, the payoff profiles between these derivatives vary, and that affects how the contracts themselves trade.
A "contingent contract" is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.
A deal contingent forward is a specialised forward foreign exchange (FX) contract. The hedging customer is only obliged to fulfil the contract if a planned major transaction, such as an acquisition, occurs.
Forward Contracts can broadly be classified as 'Fixed Date Forward Contracts' and 'Option Forward Contracts'. In Fixed Date Forward Contracts, the buying/selling of foreign exchange takes place at a specified future date i.e. a fixed maturity date.
A contingent contract is a legal agreement in which the terms and conditions only apply or take effect if a specific event occurs. Essentially, the parties involved agree to perform actions or obligations based on the occurrence or non-occurrence of a particular event in the future.
Should you decide to terminate a Forward Contract prior to the maturity date (for example, in the event that the underlying transaction will not be completed), you will transact an equal and opposite transaction in order to reverse the agreed exchange.
Two types of foreign exchange contracts exist: “Open” forward contracts and “closed” forward contracts. Open forward contracts set a window of time within which all or any portion of a contract can be settled; whereas, the entire amount of a closed contract must be settled on an exact date.
