FORWARD POINTS
\fˈɔːwəd pˈɔ͡ɪnts], \fˈɔːwəd pˈɔɪnts], \f_ˈɔː_w_ə_d p_ˈɔɪ_n_t_s]\
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The differential between a SPOT RATE and FORWARD RATE in the FOREIGN EXCHANGE markets. Forward points arise as a result of INTEREST RATE DIFFERENTIALS, market expectations related to currencies and INTEREST RATES, and/or currency supply and demand. While forward points can be computed as the difference between spot and forward currency rates, they can also be estimated via: where FXS is the spot currency rate, rdiff is the interest rate differential between the two currencies, t is the time to maturity (days), and RB is the rate basis (e.g., 360 or 365 days).
By Henry Campbell Black
