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

    The spot rate shows the cost of executing a financial transaction today, while the forward rate provides the cost of executing ... Read Answer >>
  2. Over what time period should I be looking at the forward rate?

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  3. How valuable is the forward rate as an overall economic indicator?

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