A forward contract which allows the holder to receive an unidentified amount of the underlying, depending on a price denominated in a different currency. For example, in a quanto forward contract on a foreign stock or stock index such as the Nikkei index, the forward price might be a specific amount of Yen, while the amount based on that index would depend proportionally on the Yen\dollar exchange rate. That is, the stock is priced in the investor’s local currency and the exchange rate at which the stock payoff is received is set at the time of the trade.
In general, the quanto forward contract is instrumental in removing the currency risk associated with investments in international equity.
