Discount Spread

DEFINITION of 'Discount Spread'

Currency forward points that are subtracted from the spot rate, to obtain a forward rate for a currency. In the currency markets, forward spreads or points are two-way quotes, that is, they have a bid price and an offer price. In a discount spread, the bid price will be higher than the offer price, while in a premium spread, the bid price will be lower than the offer price.

BREAKING DOWN 'Discount Spread'

For example, assume a euro spot rate of EUR 1 = 1.4000 / 1.4002 USD, and that six-month interest rates for the euro are higher than for the USD. If the discount spread for six months is 25 / 24, the six-month euro rate will be EUR 1 = 1.3975 / 1.3978 (1.4000 - 0.0025 and 1.4002 - 0.0024).




RELATED TERMS
  1. Currency Forward

    A binding contract in the foreign exchange market that locks ...
  2. Spot Exchange Rate

    The rate of a foreign-exchange contract for immediate delivery. ...
  3. Forward Premium

    When dealing with foreign exchange (FX), a situation where the ...
  4. Forward Discount

    In a foreign exchange situation where the domestic current spot ...
  5. Forward Points

    The number of basis points added to or subtracted from the current ...
  6. Derivative

    A security with a price that is dependent upon or derived from ...
Related Articles
  1. Options & Futures

    An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.
  2. Active Trading

    What Drives The Price Of Gold?

    Gold prices are based on the economy and actual uses, but there are many other factors that dictate gold's perceived value.
  3. Investing News

    The Two Biggest Flash Crashes of 2015

    A flash crash occurs when prices plunge in minutes, and then often recover just as quickly. Here are two major flash crashes that occurred in 2015.
  4. Options & Futures

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  5. Forex Strategies

    Buying Euros as a Long-Term Investment: Risks and Rewards

    Learn about the potential risks and rewards of long term investing in the euro and the current status of the European Union's financial markets.
  6. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  7. Forex Strategies

    3 Simple Strategies For Euro Traders

    Euro traders can execute three simple but effective strategies that take advantage of repeating price action.
  8. Investing

    5 Companies Benefiting From Germany's Record Surplus

    A weaker euro is boosting German exports, which have led to a record trade surplus. Here are five German companies reaping the benefits.
  9. Economics

    The Trajectory of Europe's Quantitative Easing Program

    The European Central Bank's quantitative easing program aims to save a heterogeneous Eurozone with liquidity for widespread investment.
  10. Forex Fundamentals

    The Best Hours To Trade The Swiss Franc

    Diverse reporting schedules keeps Swiss franc forex markets active and liquid between midnight and noon U.S. Eastern Time.
RELATED FAQS
  1. What does "outrights" mean in the context of the FX market?

    The term "outrights" is used in the forex (FX) market to describe a type of transaction in which two parties agree to buy ... Read Full Answer >>
  2. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  3. How does a forward contract differ from a call option? (AAPL)

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  4. Over what time period should I be looking at the forward rate?

    Your target time horizon for forward rates depend on your own investment horizon. If you have a specific forward contract, ... Read Full Answer >>
  5. What kinds of derivatives are types of forward commitments?

    A derivative is a type of security in which the price of the security is dependent on underlying assets. A derivative could ... Read Full Answer >>
  6. How do I calculate a forward rate in Excel?

    You need to have the zero-coupon yield curve information to calculate forward rates, even in Microsoft Excel. Once the spot ... Read Full Answer >>
Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  3. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  4. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  5. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
Trading Center