If the base currency in a forward exchange rate quote is trading at a forward discount, which of the following statements is most accurate?
The forward points will be positive. The forward percentage will be negative. The base currency is expected to appreciate versus the price currency.
B is Correct
Can someone explain the answer.
currency trading at a forward discount means that 1 unit of the base currency costs less for forward delivery than for spot delivery; i.e., the forward exchange rate is less than the spot exchange rate. The forward points, expressed either as an absolute number of points or as a percentage, are negative.
If the base Currency (denominator ) is at a discount then why would the Price currency forward be negative ? If the base currency is losing value shouldn’t the price currency (numerator) gain value and therefore be positive ?