” How to Calculate Forward Discount Factor” – A Comprehensive Guide
In international finance, the forward discount factor plays a critical role in managing currency exchange risks. It is the rate used to convert a future value of a currency to its present value, taking into account the difference in interest rates between two currencies. For instance, if the forward discount factor for the euro against the US dollar is 0.95, it means that one euro received in the future is currently worth $0.95.