...International finance: transactions, policy, and regulation, Foundation Press: Westbury, N.Y.... A forward is a contract between two parties to buy/sell a specified amount of the underlying instrument, in thiscase 50M Euros, at a fixed date in the future, in this case in 3 months. The company is worried that the Euro/USD exchange rate would move adversely hence the company enter into a forward contract.
The company therefore engages to sell the 50 million Euros at 1.03 USD/Euro;
If 1 Euro = 1.03 USD
Therefore, 50 million Euro = (1.03*50 million)/1 USD
= 51.5 million USD
In three months the current exchange rate is 1.05 USD/Euros. This is the rate at which the co...