Discounting refers to the situation that the forward exchange rate is lower than the spot exchange rate, that is, when exchanging bills or currencies, the party with the lower exchange rate has to make up for the difference caused by the different exchange rates for the other party. The difference between forward exchange rate and spot exchange rate is expressed by premium, discount and average price. Premium means that the forward exchange rate is higher than the spot exchange rate, while the discount is the opposite.

In order to avoid the risk of operating foreign exchange, foreign exchange brokerage banks generally set forward exchange rates different from spot exchange rates. The part expressed in foreign currency in an enterprise forward contract is converted at the spot exchange rate, and the part expressed in local currency is priced at the forward exchange rate. In a forward contract for selling foreign exchange, the forward exchange rate is usually lower than the spot exchange rate. The cost of avoiding the risk of exchange rate changes is reflected in the discount.