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The basis points used to determine the difference between the forward exchange rate and the spot exchange rate.
Forward points are the number of basis points that represent the difference between the forward exchange rate and the spot exchange rate. These points are crucial for calculating the cost or premium of holding a currency forward contract over a specified period. They reflect the interest rate differential between the two currencies involved in the pair, adjusted for the time until the contract’s maturity. Understanding forward points is essential for traders and investors engaging in forex markets to hedge currency risks or speculate on future currency movements.
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