Currency Forward Premium Is No Guaranteed Forecast
Summary
Hollow Point Trading shares an explainer on why a currency forward quote is not a guaranteed forecast of the future spot price. It uses a hypothetical example with a spot rate of $1.10 per euro and one-year rates of 5% for dollars and 3% for euros to show how rate differences affect the forward quote.
https://youtu.be/TO8n_yThZCo
A currency forward premium is not a guaranteed forecast #CurrencyFo...
A forward currency quote is not a guaranteed prediction of the future spot price. In a hypothetical frictionless example, one euro costs one dollar ten today. Assume matched one year simple rates of five percent for dollars and three percent for euros. For dollars per euro, multiply the spot rate by one point zero five divided by one point zero ...
