One: Forward exchange rate is the symmetry of "spot exchange rate". The exchange rate of forward foreign exchange transactions. Usually stipulated in the forward foreign exchange transaction contract. When the forward contract expires, no matter how the spot exchange rate changes, the buyer and the seller shall make delivery according to the forward exchange rate stipulated in the contract. The difference between forward exchange rate and spot exchange rate is called forward spread, or forward exchange rate, which is usually expressed by premium, discount or parity. The forward exchange rate of a country's currency is higher than the spot exchange rate, which is called premium, and the forward exchange rate is lower than the spot exchange rate, which is called discount. Both are called parity.
Two: According to the exchange rate parity, the forward spread usually reflects the spread between two currencies. That is, currencies with high interest rates generally show discounts, while currencies with low interest rates generally show premiums. Forward exchange rate is directly related to the profit and loss of hedging, arbitrage and speculation by using forward foreign exchange transactions.
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.