Forward contract

A private agreement to buy or sell an asset at a price fixed today for delivery on a future date. Unlike a future it is negotiated between two parties, can be tailored to any amount and date, and is settled only at the end, so each side carries the other's credit risk until then.

Companies use them most for currencies. The two currencies' interest rates set the forward rate, and no forecast enters into it: with the rupee at ₹84 to the dollar, rupee interest at 6.5% and dollar interest at 4.5%, the one-year forward rate is about ₹85.61. Paying more rupees for each future dollar offsets the higher rupee interest rate.

An importer that buys dollars forward at ₹85.61 knows its cost whatever the rupee does, and gives up any gain if the rupee strengthens. That's a hedge, not a bet.

The forward premium is an interest rate gap. It predicts nothing.