A currency forward is a contractual agreement to buy or sell a specified amount of one currency against payment in another currency at a fixed future date known as the value date.The exchange rate is determined at the time the contract is entered into. In a typical currency forward, an American firm sells EUR 100,000 forward to a bank at a forward rate of 1.21 EUR-USD with payment due in 90 days, while the spot rate is 1.20. This is done to offset possible changes in the value of a EUR 100,000 sale to a European client, to be settled in 90 days. If, at settlement, the spot rate is 1.16, the value of the sale declines by USD 4,000 to 116,000. The firm delivers the EUR 100,000 obtained from the sale to the bank, and receives USD 121,000 as specified in the currency forward. The USD 5,000 gain on the forward reflects the change in the spot rate and also the forward points (the difference between spot and forward rate due to interest rate differentials).