Foreign Exchange Master Agreement (IFEMA): Definition, How It Works, and Examples

The International Foreign Exchange Master Agreement (IFEMA) serves as a standardized contract for parties involved in spot and forward transactions within the foreign exchange (forex) market. Unlike ad-hoc agreements, a master agreement like IFEMA provides a framework with predefined terms and conditions, streamlining the process for parties engaged in repetitive transactions.

The International Foreign Exchange Master Agreement (IFEMA) was introduced in 1997 through collaboration between the British Bankers’ Association and the Foreign Exchange Committee, sponsored by the Federal Reserve Bank of New York. Initially targeted towards interdealer trades, IFEMA aims to establish best market practices for forex transactions, accommodating potential market evolution by allowing customization for non-dealer counterparties.

IFEMA’s development involved key players such as the British Bankers’ Association, the Foreign Exchange Committee, the Canadian Foreign Exchange Committee, and the Tokyo Foreign Exchange Market Practices Committee. While primarily tailored for interdealer trades, the agreement’s flexibility allows adaptation for various counterparties.

Concurrently with IFEMA’s inception, similar master agreements were formulated for different transaction types. Notably, the International Currency Market Options Master Agreement (ICOM) and the Foreign Exchange and Options Master Agreement (FEOMA) were created to address currency options and combined spot, forward, and options transactions. These agreements, including IFEMA, laid the groundwork for standardizing practices in the forex market.

In 2005, the International Foreign Exchange and Currency Option Master Agreement (IFXCO) complemented the existing suite of agreements. Authored by the same four foreign exchange committees as IFEMA, IFXCO further refined protocols for currency options alongside spot and forward transactions.

IFEMA serves as a standardized agreement for parties involved in spot and forward transactions in the foreign exchange market. It outlines terms and protocols, facilitating efficient communication and agreement between counterparties.

IFEMA was developed by the British Bankers’ Association and the Foreign Exchange Committee, in collaboration with the Canadian Foreign Exchange Committee and the Tokyo Foreign Exchange Market Practices Committee.

While initially intended for interdealer trades, IFEMA can be used by non-dealer counterparties if mutually agreed upon. Its flexible framework allows for customization to accommodate various transaction types and counterparties.

Concurrently with IFEMA, master agreements such as the International Currency Market Options Master Agreement (ICOM) and the Foreign Exchange and Options Master Agreement (FEOMA) were developed to address different transaction types within the forex market.