Question

Answer the short Question :

What is a forward rate? What is a forward premium? What is a forward discount? What does it mean to be "long" in a currency? What does it mean to be "short" in a currency?

Answer 1

1) Forward rate is a term used in Future Stock Market, which represents the current expectations of future securities interest rates or exchange rate. It is calculated taking the current interest rate or exchange rate as base.

2) Forward premium is a price in the future presenting a situation where expected future price for a currency is higher to the current or spot price. It shows that future rate or price would increase of current rates or prices.

3) Forward discount is a price totally reverse of the Forward premium, which presents a situation where expected future price for a currency is lower to the current or spot price. It shows that future rate or price would decrease of current rates or prices.

4) To be long in a currency means buying the currency at the current rate/price with the expectation of rise in the rates in future and then squaring up the current bought position at higher rate or price.

5) To be short in a currency means selling the currency at the current rate/price with the expectation of decline in the rates in future and then squaring up the current sold position at lower rate or price.