Page 6 - FINAL CFA II SLIDES JUNE 2019 DAY 4

LOS 11.c: Distinguish between spot and forward rates READING 11: CURRENCY EXCHANGE RATES: UNDERSTANDING EQUILIBRIUM VALUE
and calculate the forward premium/discount for a
given currency.
MODULE 11.1: FOREX QUOTES, SPREADS, AND TRIANGULAR
ARBITRAGE
Forward Premium (for the base currency) : Forward price (in units of the second currency) > spot price.
Forward Discount (for the base currency) : Forward price (in units of the second currency) < spot price.

If say, spot price is 1.20$/€ and the forward price is 1.25$/€, base currency, €, is trading at a forward premium.

Forward premium (discount) = F – S 0

Forward quotes all +, so CAD
(the base currency) is trading at
premium!