Forward differential

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Forward differential

Annualized percentage difference between spot and forward rates.

Forward Differential

The percentage difference between the spot price and the forward price of an asset. The forward differential is expressed in annualized terms, and may help the investor determine the general price trend of an asset.
References in periodicals archive ?
For reasons of simplicity, this article uses historical averages of implied forward differentials.
Between the middle of 2001 and the middle of 2004, the average of one-year implied forward differentials for 2005 was around 430 basis points.
If one assumes no particular anticipated movement in the nominal exchange rate in years preceding eurozone entry, implied forward differentials for these years can be used as a proxy for future risk premia.
The authors choose two alternative scenarios for the risk premia: the average of implied forward differentials for 2005 plus and minus the standard deviation observed in the sample.