A 'Forward Exchange Contract' (FEC) is a financial instrument primarily used for hedging purposes. It enables parties to manage the risk associated with fluctuations in exchange rates. In this type of contract, two parties agree on an exchange of a specific amount of one currency for another, fixing the exchange rate at the time of the agreement while ensuring the actual exchange is performed at a designated future date.

For example, an international company planning to make purchases in a foreign currency may use a forward exchange contract to lock in the exchange rate beforehand. This helps the company budget without worrying about adverse currency movements affecting the cost of the transaction.

FECs are significant for businesses dealing in multiple currencies as they provide stability and predictability, minimizing the financial risks associated with volatile currency markets. They are widely used in finance for risk management, strategic planning, and to facilitate international trade.