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Forward discount

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Definition of Forward discount

Forward Discount Image 1

Forward discount

A currency trades at a forward discount when its forward price is lower than its spot price.



Related Terms:

Accretion (of a discount)

In portfolio accounting, a straight-line accumulation of capital gains on discount
bond in anticipation of receipt of par at maturity.


ad hoc discount

a price concession made under competitive pressure (real or imagined) that does not relate to quantity purchased


ADF (annuity discount factor)

the present value of a finite stream of cash flows for every beginning $1 of cash flow.


Bank discount basis

A convention used for quoting bids and offers for treasury bills in terms of annualized
yield , based on a 360-day year.


Cash discount

An incentive offered to purchasers of a firm's product for payment within a specified time
period, such as ten days.



constant-growth dividend discount model

Version of the dividend discount model in which dividends grow at a constant rate.


Continuous Discounting

The process of calculating the present value of a stream of future
cash flows by discounting over a continuous period of time


Forward Discount Image 2

Deep-discount bond

A bond issued with a very low coupon or no coupon and selling at a price far below par
value. When the bond has no coupon, it's called a zero coupon bond.


Discount

Referring to the selling price of a bond, a price below its par value. Related: premium.


Discount

The percentage amount at which bonds sell below their par value. Also the percentage amount at which a currency sells on the forward market below its current rate on the spot market.


Discount bond

Debt sold for less than its principal value. If a discount bond pays no interest, it is called a
zero coupon bond.


Discount Bond

A bond with no coupons, priced below its face value; the return on this bond comes from the difference between its face value and its current price.


Discount curve

The curve of discount rates vs. maturity dates for bonds.


Discount factor

Present value of $1 received at a stated future date.


discount factor

Present value of a $1 future payment.


Discount period

The period during which a customer can deduct the discount from the net amount of the bill
when making payment.


Forward Discount Image 3

discount rate

the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.


Discount rate

The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is
temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the
Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.



Discount Rate

The rate of interest used to calculate the present value of a stream
of future cash flows


discount rate

the rate of return used to discount future cash
flows to their present value amounts; it should equal or
exceed an organization’s weighted average cost of capital


discount rate

Interest rate used to compute present values of future cash flows.


Discount Rate

The interest rate at which the Fed is prepared to loan reserves to commercial banks.


Discount Rate

A rate of return used to convert a monetary sum, payable or receivable in the future, into present value.


Discount securities

Non-interest-bearing money market instruments that are issued at a discount and
redeemed at maturity for full face value, e.g. U.S. Treasury bills.


Discount window

Facility provided by the Fed enabling member banks to borrow reserves against collateral
in the form of governments or other acceptable paper.


Discount Window

The Federal Reserve facility at which reserves are loaned to banks at the discount rate.


Discounted basis

Selling something on a discounted basis is selling below what its value will be at maturity,
so that the difference makes up all or part of the interest.


Discounted cash flow

A technique that determines the present value of future cash
flows by applying a rate to each periodic cash flow that is derived from the cost of
capital. Multiplying this discount by each future cash flow results in an amount that
is the present value of all the future cash flows.



Discounted Cash Flow

Techniques for establishing the relative worth of a future investment by discounting (at a required rate of return) the expected net cash flows from the project.


Discounted cash flow (DCF)

Future cash flows multiplied by discount factors to obtain present values.


Discounted cash flow (DCF)

A method of investment appraisal that discounts future cash flows to present value using a discount rate, which is the risk-adjusted cost of capital.


discounted cash flow (DCF)

Refers to a capital investment analysis technique
that discounts, or scales down, the future cash returns from an
investment based on the cost-of-capital rate for the business. In essence,
each future return is downsized to take into account the cost of capital
from the start of the investment until the future point in time when the
return is received. Present value (PV) is the amount resulting from discounting
the future returns. Present value is subtracted from the entry
cost of the investment to determine net present value (NPV). The net
present value is positive if the present value is more than the entry cost,
which signals that the investment would earn more than the cost-ofcapital
rate. If the entry cost is more than the present value, the net
present value is negative, which means that the investment would earn
less than the business’s cost-of-capital rate.


Discounted dividend model (DDM)

A formula to estimate the intrinsic value of a firm by figuring the
present value of all expected future dividends.


Discounted payback period rule

An investment decision rule in which the cash flows are discounted at an
interest rate and the payback rule is applied on these discounted cash flows.


Discounting

Calculating the present value of a future amount. The process is opposite to compounding.


Discounting

The process of calculating the present value of a stream of future
cash flows


discounting

the process of reducing future cash flows to present value amounts


Discounting

Calculating the present value of a future payment.


Discounting

The process of finding the present value of a series of future cash flows. discounting is the reverse of compounding.


Discounting of Accounts Receivable

Short-term financing in which accounts receivable are used as collateral to secure a loan. The lender does not buy the accounts receivable but simply uses them as collateral for the loan. Also called pledging of accounts receivable.


dividend discount model

Computation of today’s stock price which states that share value equals the present value of all expected future dividends.


Dividend discount model (DDM)

A model for valuing the common stock of a company, based on the
present value of the expected cash flows.


DLOC (discount for lack of control)

an amount or percentage deducted from a pro rata share of the value of 100% of an equity interest in a business, to reflect the absence of some or all of the powers of control.


DLOM (discount for lack of marketability)

an amount or percentage deducted from an equity interest to reflect lack of marketability.


Documented discount notes

Commercial paper backed by normal bank lines plus a letter of credit from a
bank stating that it will pay off the paper at maturity if the borrower does not. Such paper is also referred to as
LOC (letter of credit) paper.


Feedforward

The process of determining prospectively whether strategies are likely to achieve the target
results that are consistent with organizational goals.


Forward buying

The purchase of items exceeding the quantity levels indicated
by current manufacturing requirements.


Forward contract

A cash market transaction in which delivery of the commodity is deferred until after the
contract has been made. It is not standardized and is not traded on organized exchanges. Although the
delivery is made in the future, the price is determined at the initial trade date.


forward contract

Agreement to buy or sell an asset in the future at an agreed price.


Forward cover

Purchase or sale of forward foreign currency in order to offset a known future cash flow.


Forward delivery

A transaction in which the settlement will occur on a specified date in the future at a price
agreed upon on the trade date.


Forward differential

Annualized percentage difference between spot and forward rates.


Forward Exchange Market

A market in which foreign exchange can be bought or sold for delivery (and payment) at some specified future date but at a price agreed upon now.


Forward exchange rate

Exchange rate fixed today for exchanging currency at some future date.


Forward Fed funds

Fed funds traded for future delivery.


Forward forward contract

In Eurocurrencies, a contract under which a deposit of fixed maturity is agreed to
at a fixed price for future delivery.


Forward interest rate

Interest rate fixed today on a loan to be made at some future date.


Forward looking multiple

A truncated expression for a P/E ratio that is based on forward (expected)
earnings rather than on trailing earnings.


Forward market

A market in which participants agree to trade some commodity, security, or foreign
exchange at a fixed price for future delivery.


Forward premium

A currency trades at a forward premium when its forward price is higher than its spot price.


Forward rate

A projection of future interest rates calculated from either the spot rates or the yield curve.


Forward rate

The future interest rate of a bond inferred from the term
structure, especially from the yield curve of zero-coupon bonds, calculated from
the growth factor of an investment in a zero held until maturity.


Forward rate agreement (FRA)

Agreement to borrow or lend at a specified future date at an interest rate
that is fixed today.


forward rate of exchange

Exchange rate for a forward transaction.


Forward sale

A method for hedging price risk which involves an agreement between a lender and an investor
to sell particular kinds of loans at a specified price and future time.


Forward trade

A transaction in which the settlement will occur on a specified date in the future at a price
agreed upon the trade date.


fractional interest discount

the combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the ADF, Gordon model, or present value factor.


Loss carryforward

The offsetting of a current year loss against the reported taxable
income for future years.


Non-Smoker Discount

In October 1996 it was announced in the international news that scientists had finally located the link between cigarette smoking and lung cancer. In the early 1980's, some Canadian Life Insurance Companies had already started recognizing that non-smokers had a better life expectancy than smokers so commenced offering premium discounts for life insurance to new applicants who have been non-smokers for at least 12 months before applying for coverage. Today, most life insurance companies offer these discounts.
Savings to non-smokers can be up to 50% of regular premium depending on age and insurance company. Most life insurance companies offering non-smoker rates insist that the person applying for coverage have abstained from any form of tobacco or marijuana for at least twelve months, some companies insist on longer periods, up to 15 years.
Tobacco use is generally considered to be cigarettes, cigarillos, cigars, pipes, chewing tobacco, nicorette gum, snuff, marijuana and nicotine patches. In addition to these, if anyone tests positive to cotinine, a by-product of nicotine, they are also considered a smoker. There are some insurance companies which allow moderate or occasional use of cigars, cigarillos or pipes as acceptable for non-smoker status. Experienced brokers are aware of how to locate these insurance companies and save you money.
Special care should be taken by applicants for coverage who qualify for non-smoker rates by virtue of having ceased a smoking habit for the required period before application, but for some reason, fall back into the smoking habit some time after obtaining coverage. While contractually, the insurance company is still bound to a non-smoking rate, the facts of the applicant's smoking hiatus may become vague over the subsequent years of the resumed habit and at time of death claim, the insurance company may decide to contest the original non-smoking declaration. The consequence is not simply a need to back pay the difference between non-smoker and smoker rates but in reality the possibility of denial of death claim. It is therefore, important to advise the servicing broker as well as the insurance company of the change in smoking habits to make certain that sufficient evidence is documented to track the non-smoking period.


Original issue discount debt (OID debt)

Debt that is initially offered at a price below par.


Purchase discounts

A contra account that reduces purchases by the amount of the discounts taken for early payment.


Pure-discount bond

A bond that will make only one payment of principal and interest. Also called a zerocoupon
bond or a single-payment bond.


QMDM (quantitative marketability discount model)

model for calculating DLOM for minority interests r the discount rate


Range forward

A forward exchange rate contract that places upper and lower bounds on the cost of foreign exchange.


risk-adjusted discount rate method

a formal method of adjusting for risk in which the decision maker increases the rate used for discounting the future cash flows to compensate for increased risk


Sales discount

A reduction in the price of a product or service that is offered by the
seller in exchange for early payment by the buyer.


Sales discounts

A contra account that offsets revenue. It represents the amount of the discounts for early payment allowed on sales.


Supplier Discount

An amount deducted from an invoice by a supplier in exchange for quick payment (a typical example might be a 2% discount if paid in 10 days or the full amount of the invoice in 30 days).



 

 

 

 

 

 

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