The difference between the “expected” forward rate and the current spot rate. In other words, this situation arises from a price relationship in which a forward price, often a currency exchange rate, is lower than the spot rate. This relationship, particularly in financial markets, often reflects the possible “negative” carrying cost of the underlying asset or instrument. In currency markets, it reflects the relative level of interest rates in the two countries whose currencies are exchanged, and indicates that interest rates are lower in the foreign currency country than in the domestic currency country.
Derivatives
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