Forward Premium

When dealing with foreign exchange (FX), a situation where the spot futures exchange rate, with respect to the domestic currency, is trading at a higher spot exchange rate then it is currently. A forward premium is frequently measured as the difference between the current spot rate and the forward rate, but any expected future exchange rate will suffice.

It is a reasonable assumption to make that the future spot rate will be equal to the current futures rate. According to the forward expectation's theory of exchange rates, the current spot futures rate will be the future spot rate. This theory is routed in empirical studies and is a reasonable assumption to make in the long term.


Investment dictionary. . 2012.

Look at other dictionaries:

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  • Forward Margin —    The discount or premium between the spot and forward rates for a forward foreign exchange transaction. It represents the interest rate differential between the two currencies traded.    ► See also Discount, Premium …   Financial and business terms

  • Forward start option — A forward start option is an option that commences at some specified future date with an expiration further in the future. It is essentially a forward on an option, only the premium is paid in advance. [ [http://www.riskglossary.com/link/forward… …   Wikipedia

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