Forward points
The forward exchange rate minus the spot rate, usually quoted in pips and scaled before being added to spot. Positive when the base currency trades at a forward premium, which reflects the interest rate differential.
Where you will meet it
Forward points appears in 4 learning outcomes on the CFA syllabus. A few of them:
- Derive a forward rate from the two interest rates and explain a currency's forward premium or discount
“Forward points are (F - S) scaled to the last quoted decimal, usually x 10,000, so +35 points on 1.2500 gives 1.2535.”
- For a spot or forward currency quote, work out and explain its bid–offer spread and say what makes that spread wider or narrower
“A forward spread is the spot spread plus the spread on the forward points, so it grows with maturity.”
- Explain how shifts in the drivers of active currency strategies alter tactical positioning
“Changing forward points also alter hedging costs.”
- Explain spot and forward exchange rates and work out a currency's forward premium or discount
“Forward points are F − S scaled by 10,000 for four-decimal pairs and are added to the spot bid and offer to give the all-in forward quote.”
See also
Base currency · Forward premium · Spot rate
Practise it
Practise forward points until it is automatic: questions that explain every wrong option.
Take the free diagnostic →