What is a forward discount?

forward is a transfer discount if the exchange rate of a foreign currency currency exceeds the exchange rate of the same country in the futures contract. This type of situation comes into play when additional currencies are carried out, which means that no currency does not change your hands until the full date date is reached. The concept is the opposite of a forward premium in which the rate exceeds the current rate. Although the current rate can be predicted ahead, there is no warranty that future rates will meet this forecast. The differences between these rates are often in a way for the foreign traders on the foreign exchange market to get in and out of shops and achieve a quick profit. If these exchange rates are carried out through future contracts, then the current rate of exchange is irrelevant and the future rate becomes a versatile. These future shops are a place where the concept of a forward discount occurs.

When a future trade occurs, there is no exchange of currency in the case of the contract for the trade contract. Instead, the trade actually takes place under the contract in the future. Therefore, the front rate is the rate at the time when the contract is concluded. For example, if the future contract is established for one month, then the applicable rate will be a exchange rate in the future.

6 If the future rate falls below the current rate, the result is a discount. When the opposite occurs, then it is said that the forward premium is held. These results are important for those traders who provide the installation by trading at the current rate and then after it with the futures contract against losses.

The problem with the effort to anticipate a discount is that the expected future rates will always take place. For example, if there is a difference in an interest rate of 1 percent at an interest rate at the time of trade, the prevailing theory is that these rates even at the time of maturation of the future contract,The lower rate will evaluate and higher rate depreciation. But future rates, as set at a time when futures contract is accepted, often differs from what really happens. This puzzle is known to investors as a leading discount.