Calculation of forward exchange rate
The calculation formula of forward exchange rate is an important and useful formula in the international financial market. By calculating the formula
It can be found that the forward exchange rate of A/B currency has nothing to do with the future trend of exchange rates of A and B. The discount of forward exchange rate (lower than spot exchange rate) does not mean that the exchange rates of these two currencies will fall in the future, but only indicates that the interest rate of A currency is higher than that of B currency.
Similarly, the premium of forward exchange rate does not mean that the currency exchange rate will rise in the future, but only shows that the interest rate of currency A is lower than that of currency B, and the forward exchange rate is only related to the interest rates of two currencies, A and B, and the days of forward. Mastering this is very useful for using forward business to prevent exchange rate risks.
Forward exchange rate = spot exchange rate+premium or-discount (note: small/large premium, large/small discount) The one-month forward exchange rate is 56/45.
From the forward exchange rate, we can know that the US dollar will be discounted after one month, so:
The forward exchange rate after one month is USD/JPY = (116.34-0.56)/(116.50-0.45) =115.78//kloc.
In contrast, the dollar depreciated and the yen appreciated.
After three months, the dollar discount is still the same and can be calculated in the same way.
Extended data:
Forward exchange rate quotation method There are usually two quotation methods for forward exchange rates:
(1) direct quotation method. Directly quote the exchange rate of forward transactions. It directly represents the forward exchange rate, and it is not necessary to convert the forward exchange rate according to the spot exchange rate and premium discount. The direct quotation method can be either direct quotation method or indirect quotation method. Its advantage is that it can make people see the forward exchange rate at a glance, but its disadvantage is that it can't show the relationship between the forward exchange rate and the spot exchange rate.
(2) Point quotation method. Also known as spot exchange rate plus premium, discount and parity, it refers to the method of reporting forward exchange rate with spot exchange rate and premium and discount points. Point quotation method needs to directly quote the points of forward remittance. Forward remittance refers to the difference between forward exchange rate and spot exchange rate. If the forward exchange rate is greater than the spot exchange rate, then the difference is called premium, which means that the forward foreign exchange is more expensive than the spot foreign exchange.
If the forward exchange rate is less than the spot exchange rate, then the difference is called discount, which means that the forward foreign exchange is cheaper than the spot foreign exchange. If the forward exchange rate is equal to the spot exchange rate, it is called parity. This quotation method is the inter-bank foreign exchange quotation method, and the forward exchange rate can be calculated by adding or subtracting discounts on the spot exchange rate.
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