Islamic FX forward
A currency hedge built on a binding promise to exchange at an agreed rate on a future date, with the exchange itself done at spot.
An Islamic FX forward fixes the rate for a future currency exchange without a conventional forward contract. One party gives a binding wa'd to exchange currencies at an agreed rate on a set date, and on that date the exchange is executed as a spot transaction. ISDA and IIFM publish templates for two versions: a single binding wa'd structure and a structure of two unilateral and independent wa'ds.
Sources
This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.
Related terms
Wa'd (promise)A unilateral promise to do something in the future; it can be made binding and is used in hedging, sukuk and lease-to-own deals.Bay al-sarf (currency exchange)An exchange of money for money, of the same or a different currency, which must be settled on the spot.Muwaadah (mutual promise)An exchange of promises between two parties for the same future transaction, treated more restrictively than a unilateral wa'd.Tahawwut (hedging)Hedging; in Islamic finance, risk management transactions built from permissible contracts rather than conventional derivatives.