How does a currency futures contract differ from a forward contract in terms of payment issues?

A currency futures contract differs from a forward contract in that it can be executed without relying on payment at the time of execution. Futures contracts are standardized agreements traded on exchanges, which means they have predetermined parameters including the contract size and settlement dates. This structure allows for cash settlement at expiration instead of requiring the physical delivery of currencies.

In contrast, forward contracts are typically customized agreements between two parties and often involve the actual exchange of currencies at a future date for a specified rate. This type of contract does rely on the payment at the time of the contract's maturity. The clearinghouse in futures markets manages the performance risk and ensures that counterparties meet their obligations, which eliminates the immediate dependence on payment that is characteristic of forward contracts.

The nature of futures contracts allows them to be settled in a way that can often bypass the need for immediate payment, distinguishing them from forwards where actual currency exchanges are closely tied to the contract's execution. This can provide liquidity and minimize credit risk, making futures contracts more flexible in handling payment issues.