Forward Premium

Forward Premium is defined as the difference between the current spot rate and the forward rate.

Formula: [(Forward rate – Spot rate)/spot rate] x (360/number of days in the contract) x 100.

1. If  forward rate > spot rate, there is a premium on that currency. In formula, a positive percentage value means a forward premium.

2. If  forward rate < spot rate, there is a discount on that currency. In formula, a negative percentage value means a discount.