A financial instrument (promissory FX) that contains an unconditional promise by one party to enter into a foreign exchange transaction with another party at a specified future date. It is a structure similar to a conventional option (khiyar taqlidi), and it uses wa’d (promise) in a specific form: unilaterally binding promise (wa’d that is binding on one party to a transaction- wa’d mulzim). One party (such as a bank) may undertake to the other (its customer), on the contract date, to exchange a given currency for another at a pre-agreed rate on a future date. The customer will pay a fee on the same date to the bank against the latter’s promise. On the future date, the customer can request the bank to deliver on its promise or might choose to release the bank from its unilateral undertaking. In case of execution, the two currencies will be exchanged at the pre-agreed exchange rate.

This structure, which features the combination of two acceptable concepts (wa’ad and sarf), is similar to an option in the sense that execution, like exercise, will be sought if the promisee (the customer who was issued the promise) finds it favorable to do so (exchange rate at the future date turns out to be favorable- i.e., less than the rate to be paid or more than the rate to be received). The fee of wa’ad is equivalent to an option’s premium.

The instrument or product is designed to help mitigate uncertainty and provide flexibility in managing foreign exchange open positions.

It is also known as an Islamic FX forward or forex wa’ad.