An exchange rate (the price of one currency expressed in the price of another) which reflects the fact that actual exchange will take place at a certain future date. The forward exchange rate for a future date is calculated as the current spot rate adjusted for forward fundamentals (plus a premium or minus a discount). Forward exchange rates are used and quoted today (for spot trades) in forward exchange rate instruments (forward exchange rate contracts, FECs), but for delivery (of the specified amount) and payment (of the countervalue) on a certain future date.

The forward exchange rate may be higher (premium) or lower (discount) than the spot exchange rate (the effect of net cost of carry or interest differential), but in very rare situations the two rates converge and remain equal. Otherwise, forward contracts produce risk-free profits through arbitrage:

Forward exchange rate = spot rate + net cost of carry (interest differential)

Net cost of carry reflects the points that are added to, or deducted from, the spot rate in the form of premium and discount. These points are quoted (while the forward rates are not). One point is equal to 0.0001 of the currency being quoted. Calculation depends on the type of quotation: direct or indirect. For direct quotations, the forward rate is obtained by adding the premium to / subtracting the discount from the spot rate, while for indirect quotations the opposite is holds: the premium is subtracted and the discount is added).

For example, if the dollar / lira is TL 18.2340- 18.2350 spot and the 3-month forward premium is quoted as 380-390, the forward rate will be:

At 380 premium: 18.2340 +(380/10000)= 18.272

AT 390 premium: 18.2350 +(390/10000) = 18.274