Forward Points

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DEFINITION of 'Forward Points'

The number of basis points added to or subtracted from the current spot rate to determine the forward rate. When points are added to the spot rate, there is a forward points premium; when points are subtracted from the spot rate, there is a points discount.

INVESTOPEDIA EXPLAINS 'Forward Points'

The number of forward points on a given exchange rate will be determined by the prevailing interest rates in each market, the time period between the spot and forward rate, and other market factors. For example, if the current spot rate of the USD/EUR is 0.7232 and the two-year forward rate is 0.7332, the number of forward points is 100 basis points (0.7332-0.7232).

RELATED TERMS
  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote ...
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  4. Spot Exchange Rate

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RELATED FAQS
  1. How do I convert a spot rate to a forward rate?

    Think of the relationship between spot and forward rates in the same way as the relationship between discounted present value ... Read Full Answer >>
  2. How accurate is the forward rate in predicting interest rates?

    Forward rates are extremely limited predictors of actual interest rates. This isn't particularly surprising, given the multitude ... Read Full Answer >>
  3. What is the difference between a forward rate and a spot rate?

    The forward rate and spot rate are different prices, or quotes, for different contracts. The forward rate is the settlement ... Read Full Answer >>
  4. Why is the initial value of a forward contract set to zero?

    Forward contracts are buy/sell agreements that specify the exchange of a specific asset and on a specific future date but ... Read Full Answer >>
  5. How are forward contracts regulated in the United States?

    Forward contracts are not regulated like most other derivatives such as futures or options. Compared to other financial instruments, ... Read Full Answer >>
  6. 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 >>
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