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).

  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 Points

    The number of basis points added to or subtracted from the current ...
  4. Forward Premium

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

    In a foreign exchange situation where the domestic current spot ...
  6. Derivative

    A security with a price that is dependent upon or derived from ...
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