where 
understanding forward exchange contracts fecs as noted above fecs are otc transactions that allow investors to trade currencies that aren t commonly traded in the forex market including minor currencies and blocked or inconvertible currencies an fec involving such a blocked currency is known as a non deliverable forward ndf fecs are not traded on exchanges and they don t trade standard currency amounts these contracts cannot be canceled except by the mutual agreement of both parties involved the parties involved in the contract are generally interested in hedging a foreign exchange position or taking a speculative position all fecs set out the they also stipulate that the prevailing spot rate on the fixing date be used to conclude the transaction the contract s rate of exchange is fixed and specified for a specific date in the future this allows the parties involved to better budget for future financial projects and be aware of their income or costs from the transaction ahead of time the nature of fecs protects both parties from unexpected or adverse movements in the currencies future spot rates forward exchange rates for most currency pairs can usually be obtained for up to 12 months in the future or up to 10 years for the four major pairs special considerationsthe largest forward exchange markets include the chinese yuan cny indian rupee inr south korean won krw new taiwan dollar twd brazilian real brl and russian ruble rub the largest otc markets take place in london with active markets also in new york singapore and hong kong some countries including south korea have limited but restricted onshore forward markets in addition to an active ndf market the largest segment of fec trading is done against the u s dollar usd there are also active markets using the euro eur the japanese yen jpy and to a lesser extent the british pound gbp and the swiss franc chf forward exchange rates for most currency pairs can be obtained for up to 12 months in advance there are four pairs of currencies known as the major pairs these are the exchange rates can be obtained for a period of up to 10 years for these pairs 1 contract times as short as a few days are also available from many providers although a contract can be customized most entities won t see the full benefit of an fec unless setting a minimum contract amount at 30 000 example of forward exchange contract fec here s a hypothetical example to show how fecs work let s assume that the u s dollar and canadian dollar cad spot rate is 1 cad buys 0 80 usd the u s three month rate is 0 75 and the canadian three month rate is 0 25 in this case the three month usd cad fec rate would be calculated as the difference due to the rates over 90 days is one one hundredth of a cent 