A forward agreement is a legally enforceable contract between two or more parties. It is a written document that outlines the terms of the agreement. A contract can refer to the actions taken to create the agreement, the physical document recording the agreement, and the legal obligations arising from it. Essentially, a contract is a promise or set of promises that the law recognises as a duty, and if these promises are breached, the law offers a remedy.
A forward agreement, also known as a forward contract, is a contractual arrangement that establishes enforceable obligations between two or more parties. To illustrate, suppose a farmer intends to sell their crop to a buyer in the future. They can enter into a forward agreement that outlines the crop’s price, quantity, and delivery date. This agreement legally binds both parties to fulfil their respective obligations. Similarly, a company seeking protection against currency exchange rate fluctuations can enter into a forward agreement with a bank. This agreement would involve exchanging a specific amount of one currency for another at a predetermined exchange rate on a future date. These examples demonstrate how a forward agreement creates a legally binding obligation for all parties involved, providing certainty and reducing risk.
A Forward Agreement is a contract between two parties to buy or sell an asset at a future date at a predetermined price.
Any asset that has a market value can be traded under a Forward Agreement, including commodities, currencies, and securities.
A Forward Agreement is a private contract between two parties, while a Futures Contract is a standardized contract traded on an exchange.
Forward Agreements can help parties manage risk by locking in a price for an asset in advance, which can be useful in volatile markets.
The main risk associated with Forward Agreements is counterparty risk, which is the risk that one party will default on the contract.
Forward Agreements can be cancelled or amended by mutual agreement between the parties, but this may result in additional costs or penalties.
If one party defaults on a Forward Agreement, the other party may be entitled to damages or other remedies under the terms of the contract.
Yes, Forward Agreements are legally binding contracts that are enforceable in court.
Yes, Forward Agreements must be in writing to be enforceable.
While it is not required to have a lawyer to enter into a Forward Agreement, it is recommended to seek legal advice to ensure that the contract is legally sound and protects your interests.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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