Forex Swap Points: Why the Forward Price Is Not a Forecast
The difference between spot and forward FX prices mainly reflects carry and market conditions, not a prediction of where spot must trade.
A quoted foreign-exchange forward is commonly derived from spot pricing and the interest-rate differential between two currencies, adjusted for market conventions and funding conditions. The forward premium or discount is therefore not simply a bank's guess about future spot prices. This distinction is important when reviewing USD/INR and major-currency hedges.
Cross-currency funding pressure can cause deviations from simple textbook relationships. Tenor, settlement calendars, collateral and access to funding also matter. The price available to a corporate customer may differ from an interbank midpoint because of credit terms and transaction costs.
An importer using a forward can reduce uncertainty about a future payment while still forgoing gains if spot moves favorably. Compare hedging cost with business cash-flow exposure rather than looking for a sure directional opportunity. The BIS survey provides context on how widely forwards and swaps are used.
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