forward discount

when it says in a text that a FC traded at forward discount to dollar, it means FC is depreciating and dollar appreciating, right?

Well, if the spot rate is Yen/USD (FC/DC) is say 100 and the Forward rate is 95, the Forward discount is 5%, so the FC is appreciating and the DC is depreciating. But if this was a Japanese investor, so its DC/FC then the FC is depreciating and the DC is appreciating…so it all depends on the quotation.

I just reread your thread…if the FC traded at a forward discount then I’m going to say its depreciating.

bigwilly Wrote: ------------------------------------------------------- > I just reread your thread…if the FC traded at a > forward discount then I’m going to say its > depreciating. thanks, i guess if someone tells me that yen is trading 5% discount to dollar, he has usd/yen in mind, not the other way around. right?

hopefully we are right :). IF someone told me that yen is trading 5% discount to dollar then I would think that they meant that the Yen was depreciating 5%. Hopefully someone else can pitch in to concur or disagree.

“FC traded at forward discount to dollar, it means FC is depreciating and dollar appreciating, right?” Yes. The depreciating currency will will trade at a discount. They key thing is to remember that the terms premium and discount refer to the premium or discount on the denominator in the exchange rate (DC/FC) Spot (/FC) = 1.5 F (/FC) = 2 will depreciate / FC will appreciate - it will take more to buy FC Fwd Premium or Discount: FC trades at 33% Premium (F/S-1 = 2/1.5- 1)

It depend on how the quote is quoted. FC/DC or DC/FC.

ws Wrote: ------------------------------------------------------- > It depend on how the quote is quoted. FC/DC or > DC/FC. that’s exactly what i am afraid of. i came across a question that tells me krean won selling at forward discount to dollar. then go on ask how a dollar investor should hedge his positions. i thought it’s a level 1 question, but i still felt diecy.

ws Wrote: ------------------------------------------------------- > It depend on how the quote is quoted. FC/DC or > DC/FC. No it doesn’t. If so, then we couldn’t talk in normal ways. Nobody says “well with a direct quote it’s trading at a discount but with an indirect quote it’s trading at a premium”. It’s just like eggs. If I give you a discount on a dozen eggs that means it costs you less than the current price. If I give you a forward discount on the currency it means it’s going to cost you less than the current price. If shekels currently cost $6 a piece trading at a forward discount means I’ll give you shekels for $5.50 each in the future. (BTW - I have no idea what the rate is for shekel but it is a cool sounding currency).

rand0m Wrote: ------------------------------------------------------- > ws Wrote: > -------------------------------------------------- > ----- > > It depend on how the quote is quoted. FC/DC or > > DC/FC. > > that’s exactly what i am afraid of. > Given FC/DC; No kidding, I know this is simple…but last week, it took me nearly an hour to realize that call on on FC is put on DC. Fell really stupid afterward.