Glossary: M08 — Exchange Rate Calculations
| Term | Definition |
|---|
| Spot rate | Exchange rate for immediate delivery of currencies |
| Forward rate | Exchange rate agreed today for future delivery |
| Cross rate | Exchange rate between two currencies derived from their rates against a third currency |
| Direct quote | Price of foreign currency in terms of domestic currency |
| Indirect quote | Price of domestic currency in terms of foreign currency |
| Bid price | Price at which dealer buys base currency |
| Ask (offer) price | Price at which dealer sells base currency |
| Bid-ask spread | Difference between ask and bid prices |
| Forward premium | Forward rate > spot rate; base currency expected to appreciate |
| Forward discount | Forward rate < spot rate; base currency expected to depreciate |
| Forward points | Difference between forward and spot rates, expressed in pips |
| Covered interest rate parity | Relationship linking spot rate, forward rate, and interest rate differential |
| Triangular arbitrage | Exploiting mispricing among three currency pairs |