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FORWARD POINT
QUOTATIONS
PRESENTED BY –
P. SAI PRATHYUSHA
19351044
M.COM (BUSINESS FINANCE)
INTRODUCTION
 In currency trading, forward points are the number of basis points
added or subtracted from the spot rate o...
EXAMPLE
Assume the Swiss franc/ us dollar (SF/$) bid ask spread is
SF 0.9776 – SF 0.9779 - Spot Rate
12 – 10 - One - Month...
Spot rate 0.9776 – 0.9779
Forward time Forward point
quotations
Forward bid price Forward ask price Outright Forward
Quota...
POINTS TO REMEMBER FOR OUTRIGHT
PRICES
 The dollar is trading at a forward discount / forward premium to the
Swiss franc....
When the second number in a forward point “pair” is bigger or larger
than the first one, it is understood by the dealer th...
 The forward points may remain constant for long duration unlike
the spot rates which keep fluctuating.
 In swap transac...
CONCLUSION
 Forward quotation expressed in points is not a foreign exchange rate
but it is the difference between the for...
THANK YOU
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Forward point quotations by P. Sai Prathyusha( Pondicherry University) M.com Business Finance

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What is forward point quotations# forward premium or forward points # forward discount or discount points # forward spread# Example# conclusion

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Forward point quotations by P. Sai Prathyusha( Pondicherry University) M.com Business Finance

  1. 1. FORWARD POINT QUOTATIONS PRESENTED BY – P. SAI PRATHYUSHA 19351044 M.COM (BUSINESS FINANCE)
  2. 2. INTRODUCTION  In currency trading, forward points are the number of basis points added or subtracted from the spot rate of a currency pair in order to determine the forward rate on a specific future date. These points are based on the difference between the interest rates of the two currency pairs.  When points are added to the spot rate, it is called as forward premium or forward points.  When points are subtracted to the spot rate, it is called as forward discount or discount points.  Forward points are also known as the forward spread.  The forward point quotations are for maturities of one week-30 years.
  3. 3. EXAMPLE Assume the Swiss franc/ us dollar (SF/$) bid ask spread is SF 0.9776 – SF 0.9779 - Spot Rate 12 – 10 - One - Month forward rate 39 – 35 - three - Month forward rate 84 – 78 - Six – Month forward rate
  4. 4. Spot rate 0.9776 – 0.9779 Forward time Forward point quotations Forward bid price Forward ask price Outright Forward Quotations One – Month 12-10 0.9776 – 0.0012 0.9779 – 0.0010 0.9764 – 0.9769 Three – Month 39-35 0.9776 – 0.0039 0.9779 – 0.0039 0.9739 – 0.9744 Six – Month 84-78 0.9776 – 0.0084 0.9779 – 0.0078 0.9692 – 0.9701 When the second number in a forward point “pair” is smaller than the first one, it is understood by the dealer that the forward points are subtracted from the spot bid and ask price to get the outright forward rates.
  5. 5. POINTS TO REMEMBER FOR OUTRIGHT PRICES  The dollar is trading at a forward discount / forward premium to the Swiss franc.  All the bid prices are smaller than the ask prices as they must be for a trader willing to make a market.  The bid –ask spread increases with the increase in the time to maturity. From the outright bid-ask spread we can see that as the maturity increases the bid-ask spread also increases. Spot bid-ask spread is 3 points i.e.; (0.9776-0.9779) One month bid ask spread is 5 points i.e.; (0.9764-0.9769) Three month bid-ask spread is 7 points i.e.; (0.9737- 0.9744) Six month bid –ask spread is 9 points i.e.; (0.9692-0.9701)
  6. 6. When the second number in a forward point “pair” is bigger or larger than the first one, it is understood by the dealer that the forward points are added to the spot bid and ask price to get the outright forward rates. Bid- ask spread is applicable here too Bid ask spread for three months and six months is 7 points and 9 points respectively which is increasing with the maturity time. Spot rate 0.9776 – 0.9779 Forward time Forward point quotations Forward bid price Forward ask price Outright Forward Quotations Three-Month 5-9 0.9776+0.0005 0.9779+0.0009 0.9781-0.9788 Six -Month 13-19 0.9776+0.0013 0.9779+0.0019 0.9789-0.9798
  7. 7.  The forward points may remain constant for long duration unlike the spot rates which keep fluctuating.  In swap transactions where the trader attempts to minimize the currency exposure, the actual spot and outright forward rates are often of no consequence. It is the premium or discount differential that is important measured in forward points.
  8. 8. CONCLUSION  Forward quotation expressed in points is not a foreign exchange rate but it is the difference between the forward rate and the spot rate.  when the bid points > Ask Points, we should subtract the points from the spot rate to get the outright forward quote. when the bid points < Ask Points, we should add the points to the spot rate to get the outright forward quote.
  9. 9. THANK YOU

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