Whether in foreign exchange investment or our daily foreign exchange trading, we should hear the term forward settlement, although many people are not very clear about the meaning of forward settlement, so today Xiaobian will take you to understand the forward settlement.
I. What is forward settlement of foreign exchange?
Long-term settlement exchange rate business refers to the business in which the client signs a long-term settlement exchange rate agreement with the bank, stipulating the type, amount, term and exchange rate of foreign exchange used to settle the exchange rate or sales exchange rate in the future, and the currency, amount and exchange rate will be settled at maturity.
The long-term foreign exchange settlement and sale business of Bank of China includes US dollar, Hong Kong dollar, Euro, Japanese yen, British pound, Swiss franc, Australian dollar and Canadian dollar. The term is 7 days, 20 days, 1 month, 2 months, 3 months to 12 months, and is divided into 14 grades.
Trading can be divided into fixed term trading or selective trading.
Ii. What is the business process of forward settlement and sale of foreign exchange?
1. Customers applying for forward settlement and sales of foreign exchange should open an account at Bank of China.
2. Sign a comprehensive agreement on forward foreign exchange settlement/sale;
For the forward settlement and sale of foreign exchange, the customer shall sign the Forward Settlement/Sale of Foreign Exchange Exchange Agreement with the Bank of China in duplicate, with the customer and the bank holding one copy respectively.
3. Entrust audit.
When applying for forward settlement and sale of foreign exchange business, customers need to fill in the Letter of Authorization for Forward Settlement and Sale of Foreign Exchange and submit valid vouchers in line with the provisions of foreign exchange settlement and sale payment to Bank of China. Bank of China will review the letter of authorization and relevant vouchers.
The forward foreign exchange settlement or sale period entrusted by the customer shall not exceed the expected foreign exchange payment period, and the trading term shall be consistent with the actual foreign exchange payment period.
4. Close the deal.
After Bank of China confirms that the client’s entrustment is valid, the client shall pay the corresponding margin or deduct the corresponding credit line;
After the transaction, Bank of China will issue “forward settlement/sale confirmation” to customers.
5. Due date review and delivery.
On the due date, the Bank of China shall examine the valid certificates and/or commercial documents submitted by the customers and handle the procedures for the settlement of foreign exchange in accordance with the relevant regulations on the management of foreign exchange settlement, sale and receipt and payment.
6. Extension.
If the customer has reasonable reasons for not being able to deliver the goods on time, he may apply for an extension.
7. Breach of Contract If the client is unable to fully perform the contract, the Bank has the right to actively close out the outstanding part of the transaction on the final delivery date.
Iii. What is the difference between forward foreign exchange transaction and forward settlement and sale?
The present foreign exchange transaction between the Chinese enterprise and the commercial bank is mainly divided into cash, spot foreign exchange transaction, contract spot foreign exchange transaction, foreign exchange futures transaction, foreign exchange options transaction, forward foreign exchange transaction and swaps transaction.
The differences between forward foreign exchange transactions and forward settlement and sales are mainly as follows: 1. Different meanings: Forward foreign exchange transactions are a kind of forward foreign exchange transactions in the foreign exchange market, and spot transactions are symmetrical.
Forward exchange transaction is one of the most important transactions in foreign exchange market.
Forward settlement and sale of foreign exchange refers to the business of settlement and sale of foreign exchange in which the exchange rate is determined before and the actual foreign exchange receipts and payments occur after (both occur simultaneously in spot settlement and sale).
The client and the bank negotiate and sign the forward settlement and sale contract, which stipulates the currency types, amount, exchange rate and delivery period of the RMB/foreign exchange to be settled or sold in the future.
2. Different nature: Forward foreign exchange transaction is a kind of forward foreign exchange transaction in the foreign exchange market;
Forward settlement and sale of foreign exchange refers to the settlement and sale of foreign exchange in which the exchange rate is determined before and the actual foreign exchange income and expenditure occurs after.
3. Different time: the delivery term of forward foreign exchange transaction is generally 1 month, 3 months, 6 months, and occasionally up to 1 year.
The purpose of such transactions is to avoid or minimize losses that may result from changes in exchange rates.
Forward settlement of foreign exchange means that on the delivery date, the customer can settle or sell foreign exchange to the bank in accordance with the currency, amount and exchange rate specified in the forward settlement and sale contract.
4. Different characteristics: forward foreign exchange trading refers to forward trading with specific delivery time specified in advance.
The aim is to avoid the risk of exchange rate changes over a period of time.
The fixed delivery period is in the units of weeks and months, such as 1 week, 2 months (60 days), 6 months (180 days), etc., which is the most commonly used form of forward foreign exchange trading in practice.
Forward settlement and sale of foreign exchange can agree in advance the exchange rate of foreign exchange settlement or sale to the bank on a certain day in the future, so it can prevent exchange rate risks and protect the currency for customers who have foreign exchange collection and payment in the future.
