• A foreign exchange forward contract (FEC) is an agreement between two parties to make a foreign exchange transaction, usually involving a currency pair that is not available on the foreign exchange markets.

  • FECs are traded on the OTC market with customizable terms, often referring to illiquid, locked or non-convertible currencies.
  • FECs are used as a risk hedge because they protect both parties from unexpected or adverse movements in future spot exchange rates when foreign exchange trading is otherwise unavailable.