Page "Forward contract" Paragraph 14

The similar situation works among currency forwards, where one party opens a forward contract to buy or sell a currency ( ex.

a contract to buy Canadian dollars ) to expire / settle at a future date, as they do not wish to be exposed to exchange rate / currency risk over a period of time.

As the exchange rate between U. S. dollars and Canadian dollars fluctuates between the trade date and the earlier of the date at which the contract is closed or the expiration date, one party gains and the counterparty loses as one currency strengthens against the other.

Sometimes, the buy forward is opened because the investor will actually need Canadian dollars at a future date such as to pay a debt owed that is denominated in Canadian dollars.

Other times, the party opening a forward does so, not because they need Canadian dollars nor because they are hedging currency risk, but because they are speculating on the currency, expecting the exchange rate to move favorably to generate a gain on closing the contract.