Window Forwards and Time Option Contracts

An ordinary FX forward fixes an exact settlement date months in advance: exactly right if you know the day you'll receive or pay foreign currency, awkward if you don't. A corporate treasurer waiting on an export shipment, for example, rarely knows whether payment lands on the 10th or the 25th of a given month. A window forward solves this by letting the client choose any business day within an agreed window — say, between the 1st and the 31st of a month — to draw down the contract, at a single rate fixed today.

The bank prices a window forward conservatively: it quotes the worst forward rate available anywhere in the window for the client, since the client controls the drawdown date and will naturally pick whichever day is most favorable to them. In practice this means the rate is usually close to the least favorable of the near and far forward points spanning the window, not an average.

For example, if forward points make the currency progressively more expensive to buy the further out the date, a window forward covering that whole span will be priced at (or near) the far-date rate, even though the client might settle on day one.