Forward premium

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The term forward premium, as used in currency trading, refers to the premium (or discount) resulting from a forward contract to be executed in the future at a forward rate. The premium is calculated as follows:

((forwardrate − spotrate) / spotrate) * (12 / numberofmonthsforward) * 100

The resulting value is a percentage and termed a premium if it is positive. If the resulting percentage is negative, it is a forward discount.

[edit] Sources

Carbaugh, Robert (2007) International Economics. Eleventh edition. South-Western Publishing. ISBN: 0324-42194-X

[edit] See also

  • Forward Premium Puzzle
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