How do Forward Contracts Work?

If the forward rate is 1.500

Then you could:

• borrow USD 1,000,000 at 4%
• convert to DM at 1.5000
• place on deposit at 8%

The borrowed about is:

Actual amount = 1,000,000

Convert to DM = 1,500,000

After 3 months =

Using the forward price formula, you can find the forward price of the contract.