Forward premium or discount

OK so I understand that if a forward exchange rate is higher than the spot we interpret it as a forward discount, and vice versa.

Yet I just came across a question in QBank based on which it seems exactly the opposite. The question (numbers altered) asks:

The spot exchange rate for CAD per CHF is 1.1 the forward CAD/CHF is 1.2.

The answer:

The forward quote is a premium and the CAD is at a forward discount to the CHF.

I agree with the 2nd part of the sentence but not with the 1st. What do I get wrongly here?

If you think of the base currency (CHF, here) as a commodity (oil, say), then saying that the forward quote is a premium is saying that the forward price of oil is higher than the spot price of oil. Whether the quote is at a forward premium or a discount is the same as whether the base currency is trading at a forward premium or discount, respectively.

So they’re saying that the CHF is trading at a forward premium (vis-à-vis the CAD) and that the CAD is trading at a forward discount (vis-à-vis the CHF).

Thank you very much Magician.

Yes I understand that the CAD is trading at a forward discount while the CHF is trading at a forward premium. Because in the future we will need more CAD to pay for the same amount of CHF.

But without specifying which is the base currency can we state if a forward quote is at premium or disocunt?

Or I should have assumed that in this example the CHF is the base currency (it is) and when we do not specify for which currency we want to determine if the quote is premium or discount we assume it is for the base currency?

So since the correct answer was: The forward quote is a premium (for the CHF) and the CAD is trading at a forward discount to the CHF.

And we don’t say the parenthesised part because it goes without saying?

Sorry for my complicated way of explaining myself.

My pleasure.

No, we cannot. However, it’s pretty hard to give a quote without specifying (at least implicitly) which is the base currency: in the notation used by CFA Institute, it’s always the second one.

It’s not really an assumption; it’s CFA Institute’s convention. And, yes: when they ask about the quote, they’re really asking about the base currency. It’s silly, but that’s the way it’s done.

Yup.

No need to apologize; the objective is for you to get a complete understanding.

Ok thanks once again, I do see it all its depth.

Again, my pleasure.