Currency futures
DerivativesExchange-traded contracts to exchange one currency for another at a future date.
In plain terms
USDINR and friends. Mostly used by importers, exporters and banks to hedge, not by investors to speculate.
1492 terms
Glossary
Every term is defined twice: once the way a filing would put it, and once the way somebody would explain it to you across a table. The second one is usually the one that sticks.
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Interest rate differential
DerivativesThe gap between short-term interest rates in two currencies, which sets the forward premium and therefore the slope of a currency futures curve.
In plain terms
The same idea as cost of carry in an equity future, met on a currency chart. It is a financing number, not a view about either currency.
Forward premium
DerivativesAlso called: Forward points
The gap between a currency’s forward or futures price and its spot rate, arising from the interest rate differential between the two currencies.
In plain terms
It shrinks to nothing at expiry by construction, so a currency futures chart can fall over a month in which the spot rate rose. Measure the premium as a distance and compare it with the move your setup expects.