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General Information
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    • General Information

    Owned by Agnes Sigurþórsdóttir (Unlicensed)
    Last updated: Jan 06, 2023
    3 min read

    Defining Currency Future Contracts (CFC)

    The increasing commercial trade in foreign exchange with simultaneous fluctuations in exchange rates has led companies that are trading abroad to demand opportunities to reduce the risk of exchange rate fluctuations. Currency futures contracts are a tool for creating predictability when using foreign currencies by setting exchange rates in advance for future transactions. Futures contracts are mostly used by companies within exports (sales) but also within imports (purchases).

    The banks in Norway have different methods of securing currency:

    • Currency account - the customer creates a currency account (bank account) which is used to pay bills or payments received in this currency.

    • Currency forward contract - binding agreement to buy or sell a certain amount of currency at an agreed price with settlement on an agreed future date (settlement date, due date).

    • Currency option - gives the customer the right but no obligation to buy or sell an agreed currency amount at a pre-agreed exchange rate at a future date. A currency option is an insurance against unwanted exchange rate developments.

    • Currency spot rate - a binding agreement to buy or sell a certain amount of currency at an agreed price in cash, immediately. However, spot rate is not suitable for long-term planning of currency sales and purchases.

      

    Most banks operate with different types of contracts:

    • Forward – contract (first contract with the bank) 

    • Swap – contract (change contract with the bank)

    Forward/Swap is defined in the futures contract module as a transaction type and is maintained by the application, i.e. the information provided by the bank regarding a Swap – contract can be registered. Basically, a Swap (change contract) will not affect the price of an invoice, order, order or posted invoice; it is the original trading price agreed in the Forward contract that is used.

    What is Supported by Currency Futures Contract

    WiseFish Currency Futures Contract supports:

    • Handling of futures contracts from WiseFish - Delivery Agreement.

    • Handling futures contracts from Sales and Purchase Invoices.

    • Handling futures contracts from Sales Order and Purchase Order.

    • Handling sales shipments (Get shipment Lines).  

    • Handling Purchase Receipts (Get receipt Lines).

    • Crediting Sales and Purchase Documents.

    • Batch posting for both purchase and sale. In principle, it is not recommended to use batch posting when using a futures contract.

    • Creation of futures contracts from posted sales and purchase documents.

    WiseFish Currency Futures Contract does not support:

    • Currency Futures Contracts does not handle BC prepayment invoice. However, it is possible to create futures contract for posted prepayment invoice.

    • Exchange rate changes and thus associated additional fees for a Swap contract are not handled and must be taken care of by the user himself; i.e. financial adjustments. 

    • Handling futures contracts for Receipt Agreement is not supported because it is not certain whether this function is needed at all. Receiving agreements are used for the purchase of fish; the fish are purchased in most cases in Norway and therefore the futures contract for the purchase of fish is not relevant. On the other hand, the purchase of services (such as freight etc.) is a large expense and one can imagine using futures contracts for these services. The Services are purchased via an order or purchase invoice and are supported by futures contracts.