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What is meant by Premium or Discount in Forward Transactions?

April 26, 2017discount forward meant Premium transactions

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What is meant by Premium or Discount in Forward Transactions?

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The forward rate (rate for forward transactions) of a currency is normally either costlier or cheaper than its Spot Rate (rate for Spot Transactions). The difference between the Spot Rate and the forward rate is called Forward Margin or Swap Points: — If the Forward Margin is at Premium, the Forward Rate will be larger than the Spot Rate. — If the Forward Margin is at a discount, then Forward Rate will be lower than the Spot Rate. Note: The regulations are subject to change, which will be announced by Reserve Bank in regular intervals. The changes, if any, will be separately notified or can be viewed in Reserve Bank website,www.rbi.org.in.