The long-term point is that the front is big and the back is small. This is a discount, that is, reduction, small reduction and big reduction.
Forward exchange rate, also known as forward exchange rate, refers to the exchange rate used when both parties reach a foreign exchange transaction agreement and agree to actually deliver foreign exchange at a certain time in the future. When the forward exchange rate reaches the delivery date, both parties to the agreement will make delivery according to the predetermined exchange rate and amount. Forward foreign exchange transaction is an appointment transaction, which is introduced to avoid foreign exchange risks because foreign exchange buyers need foreign exchange funds at different times.
The calculation formula of forward exchange rate is an important and useful formula in the international financial market. Through the calculation formula, we can find that the forward exchange rate of A/B currency has nothing to do with the future exchange rate trend of A and B currencies, and the discount of forward exchange rate (lower than the 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.