(1) Other things being equal, the forward exchange rate of the currency with lower interest rate between the two currencies is premium, and the currency with higher interest rate is discount.

(2) The difference between the forward exchange rate and the spot exchange rate depends on the interest rate difference between the two currencies, which is roughly balanced with the interest rate difference.

Extended data:

The exchange rate used in spot foreign exchange transactions is called spot exchange rate. The exchange rate used in foreign exchange forward transactions is called forward exchange rate. When a foreign exchange buyer and seller make a transaction, if it is delivered within two days, the spot exchange rate is generally adopted. Usually, the telegraphic transfer exchange rate and the letter transfer exchange rate are spot exchange rates.

Unlike the spot exchange rate, the forward exchange rate is not only affected by the market conditions during the transaction. The change of interest rate, the trend of international capital and even the change of political and economic situation at home and abroad may affect its dynamics.

There are two pricing methods for forward exchange rate, one is to directly mark its actual exchange rate, and the other is to mark the difference between forward exchange rate and spot exchange rate with premium, discount and price, which is called forward difference. In the case of direct quotation, premium means that the forward exchange rate is higher than the spot exchange rate, and the forward exchange rate marked as premium is equal to the spot exchange rate plus the premium amount.

For example, the forward exchange rate of USD against GBP is 0.0 1 USD. If the spot exchange rate is 1 GBP = 1.54 USD, the forward exchange rate is1.54+0.01=1.55 USD. Discount means that the forward exchange rate is lower than the spot exchange rate. If indirect pricing method is adopted, the forward exchange rate marked as discount is equal to the spot exchange rate plus the discount amount. Parity means that the forward exchange rate is equal to the spot exchange rate.

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