Par Forwards and Forward Strips

A corporate treasurer hedging twelve months of recurring foreign-currency receivables could buy twelve separate forward contracts, one per month, each at its own market forward rate. Or they could ask for a par forward strip: one single blended rate applied to every one of those twelve deliveries, so every month settles at the same rate rather than twelve different ones.

The blended rate is simply the weighted average of the individual forward rates for each maturity in the strip, weighted by the notional delivered on each date. No value is created or destroyed by blending — the bank offering the par forward is indifferent between the strip and the twelve separate forwards, because they're worth the same in total; the treasurer is only giving up the variation across months in exchange for one easy-to-communicate number.

Worked example

A treasurer hedges three months of $1 million receivables each, with individual forward rates of 1.0800, 1.0820, and 1.0850 (EURUSD). Because the notionals are equal, the par rate is the simple average: $(1.0800 + 1.0820 + 1.0850)/3 = 1.0823$. Every month settles at 1.0823 instead of its own rate — the treasurer receives slightly less than 1.0850 in month three but slightly more than 1.0800 in month one, netting to the same total dollars as the three separate forwards would have delivered.