“Closed forward contract”
A closed forward, in contrast to an open forward, is a forward contract in which a currency transaction is to be completed at an agreed exchange rate on a specified future date, known as the value date.
There is no flexibility regarding the date of transaction completion and drawdowns are not permitted, in comparison with an open forward.
Closed forwards are used essentially as a simple, straight-forward FX product for hedging the risk inherent in foreign exchange market volatility. A closed forward can be used when there is no risk that the the underlying business terms will change.
The ‘fixed’, ‘standard’ or ‘European’ contracts are the simplest form of closed forward. They consist of the original closed contract, in which the buyer and vendor agree the rate for a concrete date when the transaction will be carried out. The purchaser and the vendor exchange the amount agreed on that exact date, neither before nor afterwards, applying the spot rate plus the respective forward points in the determined period.