Guide to Analysing Companies

Forward contract
An agreement to buy a specified quantity of a commodity or
currency at some specified future time and place. A forward
contract in the foreign-exchange market might involve an
agreement to buy £100,000-worth of sterling in dollars; that is,
to pay now (in dollars) for the delivery of £100,000 in three
months’ time. The exchange rate to be paid for this sterling will
reflect market expectations about the appreciation or depreci-
ation of sterling against the dollar over the next three months.
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FORWARD CONTRACT
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A premium over the spot rate will indicate that sterling is ex-
pected to appreciate and a discount will indicate an expected
depreciation.
Forward cover
The process of covering future payments or receipts, either by
buying now (in the futures markets) the currency that is re-
quired for the payment, or by selling now a receipt that is due
in the future. This is particularly valuable in volatile foreign-
exchange markets where fluctuations in rates can wipe out
an ordinary business’s profit.
Forward rate agreement
An agreement between two parties to protect themselves
against movements in interest rates in a particular currency.
The contract ties in both parties for a particular period of
time and covers a specified rate. Should interest rates move
away from the agreed rate, then one party pays the other the
difference between the two rates.
Franked income
Income paid from a company’s profits on which tax has
already been paid. This matters to investment companies in
countries such as the UK, where dividends are paid net of
the basic rate of tax. If they can show that income is franked,
investment trusts escape having to pay tax twice.
Fraud
An act of deception aimed at gaining financial benefit illegally,
at the expense of others. Fraud can be the result of many differ-
ent kinds of deception, from lying in documents to support a