Quotations on Forward Markets

Quotations on Forward Markets

Forward rates are quoted for different maturities such as one month, two months, three months, six months and one year. Usually, the maturity dates are closer to month-ends. Apart from the standardized pattern of maturity periods, banks may quote different maturity spans, to cater to the market/client needs.

The quotations may be given either in outright manner or through Swap points. Outright rates indicate complete figures for buying and selling. For example, Table contains Re/FFr quotations in the outright form. These kinds of rates are quoted to the clients of banks.

Re/FFr QUOTATIONS

	Buying rate	Selling rate	Spread
Spot	6.0025	6.0080	55 points
One-month forward	6.0125	6.0200	75 points
3-month forward	6.0250	6.0335	85 points
6-month forward	6.0500	6.0590	90 points

If the Forward rate is higher than the Spot rate, the foreign currency is said to be at Forward premium with respect to the domestic currency (in operational terms, domestic currency is likely to depreciate). On the other hand, if the Forward rate is lower than Spot rate, the foreign currency is said to be at Forward discount with respect to domestic currency (likely to appreciate).

The difference between the buying and selling rate is called spread and it is indicated in terms of points. The spread on Forward market depends on (a) the currency involved, being higher for the currencies less traded, (b) the volatility of cur­rencies, being wider for the currency with greater volatility and (c) duration of contract, being normally wider for longer period of maturity. Table gives Forward quotations for different currencies against US dollar.

Apart from the outright form, quotations can also be made with Swap points. Number of points represents the difference between Forward rate and Spot rate. Since currencies are generally quoted in four digits after the decimal point, a point represents 0.0001 (or 0.01 per cent) unit of currency. For example, the difference between 6.0025 and 6.0125 is 0.0100 or 100 points.

The quotation in points indicates the points to be added to (in case of premium) or to be subtracted from (in case of discount) the Spot rate to obtain the Forward rate. The first figure before the dash is to be added to (for premium) or subtracted from (for discount) the buying rate and the second figure to be added to or subtracted from the selling rate. A trader knows easily whether the forward points indicate a premium or a discount. The buying rate should always be less than selling rate. In case of premium, the points before the dash (corresponding to buying rate) are lower than points after the dash. Reverse is the case for discount. These points are also known as Swap points.