What is forward premium How does the forward market help in reducing currency risk in international business?

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2026-05-20 15:20

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The forward premium arises due to interest differentials between two currencies. In order that the two currencies have the same intrinsic values as they have today and avoid interest arbitrage, the premium/discount comes into effect.The forward rate includes the forwrd premium/discount and so the risk of spot market moving in the wrong way is minimised by entering into a forward contract.

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