A forward extra allows you to secure a protection rate (less favourable than the benchmark forward rate), while allowing you to take 100% advantage of a favourable move in the spot rate at expiry, provided that the spot rate at expiry is not above the knock-in barrier.
Complexity level : 
:
Catégorie : 2 *
Guarenteed protection rate : 
Protection rate level against benchmark forward rate :
Less favourable
Amount dealt at expiry :
Same as the notional amount
In what market to use it ?
Participation in a favorable move in spot :
Scenario 1
At expiry, if the spot rate is less favourable than the protection rate, you can buy the notional amount at protection rate.
Scenario 2
At expiry, if the spot rate is between the protection rate and the knock-in barrier rate, you are released from any obligation and you can therefore buy the amount of your choice at spot rate.
Scenario 3
At expiry, if the spot rate is above the knock-in barrier rate, you must buy the notional amount at protection rate.
| Currency cross |
EUR / USD |
| Side |
Buy USD |
| Contract maturity |
6 months |
| Benchmark forward rate |
1,1030 |
| Protection rate level |
1,09 |
| Improved rate level |
N/A |
| Readjusted rate level |
N/A |
| Low barrier level |
N/A |
| High barrier level |
1,135 |
| Participation rate |
100% |
| Ratio |
1 : 1 |
| Reserve of points |
N/A |
| Type of contract |
European |
| Frequency of fixings |
N/A |
| Frequency of deliveries |
N/A |
| Fixing |
10 am, New-York time |
Advantages
- You benefit from a guaranteed protection rate whatever the movements in the exchange rate
- You benefit from a favourable move in the spot rate in the limit of the knock-in barrier rate
Disadvantages
- The protection rate is less favourable than the benchmark forward rate
- Participation in the favourable move in the spot rate is limited to the level of the knock-in barrier and cancelled beyond