Definition: An OTC Currency Forward Contract that settles for a cash amount, perhaps in a third currency, without requiring the exchange of the two underlying currencies. Example: Instead of settling a Forward Contract by having party A deliver 10, 000, 000 DEM (worth 6, 000, 000 USD) in Germany and party B deliver 600, 000, 000 JPY (worth 6, 100, 000 USD) in Tokyo, party B would deliver the net dollar value of the two payments (100, 000 USD) in New York. Application: The CFD would reduce the problem of Herstatt Risk (q. V.). Pricing: Prices for the two legs of the transaction should be readily visible in the liquid currency markets. Risk Management: This tool is for managing market risk, while managing settlement risk. Comment:
Barry Goldsmith
| APA | Barry Goldsmith. (2010). contract for difference. Retrieved September 20, 2026, from http://smartdefine.org/contract_for_difference/definitions/1150672 |
| Chicago | Barry Goldsmith. 2010. "contract for difference" http://smartdefine.org/contract_for_difference/definitions/1150672 (accessed September 20, 2026). |
| Harvard | Barry Goldsmith 2010, contract for difference, Smart Define, viewed 20 September, 2026, <http://smartdefine.org/contract_for_difference/definitions/1150672>. |
| MLA | Barry Goldsmith. "contract for difference" 21 October 2010. Web. 20 September 2026. <http://smartdefine.org/contract_for_difference/definitions/1150672> |