Forward Discount

What is a 'Forward Discount'

A forward discount, in a foreign exchange situation, is where the domestic current spot exchange rate is trading at a higher level then the current domestic futures spot rate for a maturity period. A forward discount is an indication by the market that the current domestic exchange rate is going to depreciate in value against another currency.

BREAKING DOWN 'Forward Discount'

A forward discount means the market expects the domestic currency to depreciate against another currency, but that is not to say that will happen. Although the forward expectation's theory of exchange rates states this is the case, the theory does not always hold.

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RELATED FAQS
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  2. Over what time period should I be looking at the forward rate?

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  4. What is the difference between a forward rate and a spot rate?

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  5. Why is the initial value of a forward contract set to zero?

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