# What is forward exchange rate and how to calculate forward exchange rate?

Investors who have a better understanding of foreign exchange transactions all know that foreign exchange transactions are divided into forward foreign exchange and spot foreign exchange. The main difference between the two is also the difference in exchange rate. How do you calculate the exchange rate of forward foreign exchange?

Forward exchange rate, also known as forward exchange rate, is symmetrical with "spot rate", which refers to the exchange rate of a forward market transaction. The agreed exchange rate adopted by the buyer and the seller for the actual delivery of foreign exchange at a certain time in the future.

The forward exchange rate is based on the spot exchange rate, which is expressed by the "premium", "discount" and "parity" of the spot exchange rate. In general, the method of pricing forward exchange rate is to mark only the premium or discount of forward exchange rate. Then the calculation of forward exchange rate should be determined according to the method of pricing in foreign exchange market.

There are usually two quotation methods of forward exchange rate
1. Direct quotation method. In other words, it directly indicates that forward exchange rate does not need to be converted according to spot rate and premium discount. The direct quotation method can be either direct quotation method or indirect quotation method. Its advantage is that it can make people understand the forward exchange rate at a glance, but its disadvantage is that it can not show the relationship between forward exchange rate and spot exchange rate.
2. Point quotation method. It is also called spot exchange rate plus premium, discount and parity. It refers to the method of reporting forward exchange rate by spot exchange rate, premium and discount points. For the point quotation method, the points of forward remittance should be quoted directly, which refers to the difference between the forward exchange rate and the spot exchange rate. If the forward rate is greater than the spot rate, the difference is called premium, which means that forward foreign exchange is more expensive than spot exchange rate. If the forward rate is less than the spot rate, the difference is called a discount, which means that the forward exchange rate is cheaper than the spot exchange rate. If the forward rate is equal to the spot rate, it is called parity. This kind of quotation method is inter-bank foreign exchange quotation method. The forward exchange rate can be calculated by the spot exchange rate plus or minus the discount.

The calculation formula of forward exchange rate is as follows:
Forward exchange rate = spot rate + spot rate × (b-rate-a rate) × forward days △ 360
I believe you all know how to calculate the forward foreign exchange rate,

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