Forward points and Net interest: Difference between pages

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Forward points (for example one month forward points of 5-8) are a conventional short-form method of quoting forward foreign exchange (FX) rates, by reference to the related foreign exchange spot quote.
1.  


The spot foreign exchange quote is adjusted by applying, for example, the one-month forward points to it, to calculate the full one month forward foreign exchange quote.
''Tax.''


Interest stated after offsetting tax effects, if any.


<span style="color:#4B0082">'''Example: Full forward quote calculation'''</span>
In this sense, ''net interest receivable'' means interest receivable stated after deducting any tax payable thereon.


If the spot foreign exchange quote is:
In this context, ''net interest payable'' means interest payable stated after offsetting any tax relief enjoyed on the interest expense.


GBP 1 = 1.6000 - 1.6010 USD


2.


And if one-month forward points are 5-8 (rising).
Interest (usually) payable, stated after deducting other offsetting interest (usually) receivable in the same period.
 
 
Then the one-month forward exchange quote is calculated by adding the forward points as follows:
 
1.6000 + 0.0005
 
= 1.6005 USD
 
1.6010 + 0.0008
 
= 1.6018 USD
 
 
The full forward quote (bid-offer) is:
 
GBP 1 = 1.6005 - 1.6018 USD.
 
 
''It is also often possible for a customer to construct a forward FX contract, by dealing separately in the spot FX contract and the swap points.''




== See also ==
== See also ==
* [[Forward contract]]
* [[Gross interest]]
* [[Foreign exchange]]
* [[Forward foreign exchange rate]]
* [[Spot rate]]
* [[Swap points]]
 
[[Category:Manage_risks]]

Revision as of 15:41, 21 August 2013

1.

Tax.

Interest stated after offsetting tax effects, if any.

In this sense, net interest receivable means interest receivable stated after deducting any tax payable thereon.

In this context, net interest payable means interest payable stated after offsetting any tax relief enjoyed on the interest expense.


2.

Interest (usually) payable, stated after deducting other offsetting interest (usually) receivable in the same period.


See also

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