ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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forward premium
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forward discount
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par value
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None of the above
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Detailed explanation-1: -If the forward price of a foreign-exchange is less than the spot price, the currency is selling at a forward premium.
Detailed explanation-2: -A forward discount is a term that denotes a condition in which the forward or expected future price for a currency is less than the spot price. It is an indication by the market that the current domestic exchange rate is going to decline against another currency.
Detailed explanation-3: -A forward premium is when a currency’s forward price is higher than its current spot price. A forward discount exists when the currency’s forward price is lower than the spot price. To calculate a forward premium/discount, find the difference between the forward price and spot price and divide it by the spot price.
Detailed explanation-4: -Summary. A forward premium occurs when the forward exchange rate is quoted higher than the spot exchange rate.
Detailed explanation-5: -In commodities futures markets, a spot rate is the price for a commodity being traded immediately, or “on the spot". A forward rate is the settlement price of a transaction that will not take place until a predetermined date.