It is a foreign exchange currency contract that locks in the interchange rate and delivery date elsewhere the spot value date. It is the modest kind of outright forward contract that protect an importer, investor and exporter from exchange rate variation. The currency forward contract defines the rate, terms and delivery date of the interchange of one currency for another.
Usually, international companies that buy or sell goods and services from foreign companies use an outright forward contract to lessen exchange rate threat by fastening in a rate that they think to be satisfactory. For example, an American international company buys some goods from a foreign French company that may require to provide half payment now and another half in three months.
The first half payment can be paid for with a spot trade, but to decrease the risk of currency fluctuation in the near future, the American company can lock in the exchange rate with an outright forward purchase of other currency.