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Advantages of Forward FX Contracts
For those exporters and importers who know for certain the amounts and dates for payment and receipt then Forward FX Contracts are the cheapest and most straightforward means of managing currency movements.

The advantages of Forward FX contracts for importers are:

Exchange rate is fixed for the term of the Forward FX contract. This protects against increased costs caused by the weakening of the importer's currency against the other currency
Cost of imports is fixed for the duration of the FX contract.Consequently the importer can fix prices and profit margins for that period.
FX contracts can permit delivery on a fixed date or between two agreed dates. This option reflects the reality that not all payments are made or are received on the contractually due date
The parties to the FX contract are legally bound to deliver the currency on the agree date

However, Forward FX contracts can be inflexible.

In the event of the need to cancel the contract, the only course of action is to take out an equal and opposite contract for the outstanding amount, for the remainder of the FX contract time to maturity. This cancels the original FX deal. If the currency has moved adversely, there will be close out costs caused by currency losses on the outstanding amount. If the currency has moved favourably, there are currency gains.

Some large corporations monitor the currencies of interest to them. They can afford to take some risks because of their portfolio of contracts which spreads their overall exposure. When they expect Spot Rates to move favourably, they will not hedge exchange rates. However they move very quickly to cover the exchange risk if the currency level changes adversely.

Smaller companies cannot normally survive high volatility in the Spot Rate so must put a hedge in place by selling forward their FX receipts, or buying currency forward to meet payment demand.

Forward FX rates are quoted at a premium or discount to Spot Rate or at Par.

There are a number of different types of forward contracts. Two in particular are popular with international traders:

Fixed Forward Exchange
This FX contract ties the bank and its customer to a currency transaction for settlement on a specific date.

Option Forward Exchange
This FX contract allows for settlement of the exchange contract within a specified time period. It allows for circumstances of brief delay in transfer of funds from overseas etc. but the spread of FX rates is wider.