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Forex

  Forex   |   Terms
  • 344
  • February 13, 2023
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Forward Premium

The amount by which the FX forward rate (foreign exchange forward rate) for a currency exceeds its FX spot rate:

Forward premium = FX forward rate – FX spot rate

This premium arises when the expected forward price of a currency (as quoted in forward contracts, among others) is above its spot price which implies an increase in the currency price in the future. Irrespective of the quoting convention, the currency with the lower interest rate will always be expected to trade at a premium in the forward market.

The opposite situation or condition is known as a forward discount.


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