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Home > Statistics > Explanatory Notes - US dollar forward premium/discount rates £ sterling against US dollar forward rates
 

Explanatory Notes - US dollar forward premium/discount rates £ sterling against US dollar forward rates

US dollars in London: forward premium/discount

Definition

Foreign exchange deals may be executed for settlement no more than two working days later, in which case they are generally termed spot deals, or for settlement at some future date, in which case they are termed forward deals. The rate for a forward deal is generally expressed by showing the amount by which the forward rate diverges from the spot rate, either in units of the appropriate foreign currency or, as in this table, as a percentage per annum.

Overview

If the forward margin is negative, the foreign currency is at a forward premium to sterling (i.e. it is more expensive) and sterling is at a forward discount to the particular foreign currency (i.e. it is cheaper).

Conversely, if the forward margin is positive, the foreign currency is at a discount to sterling and sterling is at a premium to the currency.

These are middle market rates (mean of the spot buying and selling rates) as observed by the Bank's Foreign Exchange Desk in the London interbank market during the late afternoon. They are not official rates and are no more authoritative than rates provided by any commercial bank operating in the London market. The outright three-month forward mid-rate is calculated by adding sterling's forward premium or subtracting its forward discount from the spot rate.

Figures shown here up to and including 1983 3rd quarter are averages of Friday observations. Thereafter, they are based on daily observations. 

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