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There is a market convention that determines which is the base currency and which is the term currency. In most parts of the world, the order is: EUR – GBP – AUD – NZD – USD – others. Accordingly, a conversion from EUR to AUD, EUR is the base currency, AUD is the term currency and the exchange rate indicates how many Australian dollars would be paid or received for 1 Euro.

The relationship between spot and forward is as follows:

where:

·        F = forward rate

·        S = spot rate

·        r₁ = simple interest rate of the term currency

·        r₂ = simple interest rate of the base currency

·        T = tenor (calculated according to the appropriate day count convention)

The forward points or swap points are quoted as the difference between forward and spot, F - S, and is expressed as the following:

where r₁ and r₂ are small. Thus, the absolute value of the swap points increases when the interest rate differential gets larger, and vice versa.

A foreign exchange swap is the simultaneous borrowing and lending of one currency for another with two different value dates.

What Does Forward Premium Mean?
When dealing with foreign exchange (FX), a situation where the spot futures exchange rate, with respect to the domestic currency, is trading at a higher spot exchange rate then it is currently. A forward premium is frequently measured as the difference between the current spot rate and the forward rate, but any expected future exchange rate will suffice.

Read more: http://www.investopedia.com/terms/f/forwardpremium.asp#ixzz1Y2muPmBL

Investopedia explains Forward Premium
It is a reasonable assumption to make that the future spot rate will be equal to the current futures rate. According to the forward expectation's theory of exchange rates, the current spot futures rate will be the future spot rate. This theory is routed in empirical studies and is a reasonable assumption to make in the long term.

Read more: http://www.investopedia.com/terms/f/forwardpremium.asp#ixzz1Y2mwqHrb

What is a forward premium in the foreign exchange market?
It's the price paid for hedging by buying dollars in the forward market. Forward transactions take place at a premium or discount to the spot rate. The outright forward transactions are over-the-counter transactions undertaken by dealers. In India, it is generally the banks that transact in forward markets.
The maturity date agreed upon by the parties generally varies from months to a year or two. But maturities beyond that tend to have wider bid-ask spreads, in other words, tend to be more expensive, so are rare. The forward rate could be in premium or discount, based on the interest rate differential in case of currencies which are fully convertible and in case of partially-convertible currencies, they are determined purely on the basis of demand and supply.
The maturity date agreed upon by the parties generally varies from months to a year or two. But maturities beyond that tend to have wider bid-ask spreads, in other words, tend to be more expensive, so are rare. The forward rate could be in premium or discount, based on the interest rate differential in case of currencies which are fully convertible and in case of partially-convertible currencies, they are determined purely on the basis of demand and supply.

For example, in India, the USD/INR forward rate for six months could be in premium or at a discount over the spot rate, based on how liquid the dollar is.

What determines forward premium?
Countries that have fully-convertible currencies, the forward premium is deduced from their interest rate differentials, respectively. The premium/discount is measured in points, which represent the interest rate differential of the countries to which the currencies belong, for the period of maturity.
These points are the quantum of foreign exchange that would neutralise the interest rate differential. Points are subtracted from the spot rate, when the interest rate of the base currency is higher, since the base currency should trade at a forward discount and points are added to the spot rate, when the interest rate of the base currency is lower, since the base currency is expected to trade at a forward premium.
This is, however, only applicable to non-rupee currencies, that are fully convertible.
What are currency futures?
Exchange-traded currency forward transactions are known as currency futures. Before April 2007, only banks were allowed to trade in currency forwards market through over-the-counter deals.
But it was not a structured market, in the sense that it was not traded on an RBI-recognised exchange platform. But in 2007, RBI and Sebi allowed trading of currency futures on the National Stock Exchange.
The objective of opening up trading in currency futures on the exchanges was to deepen the futures market by allowing the small retail investors to take a view and hedge their foreign exchange risks. The regulatory authorities in India are on their way to allow trading in currency options on exchanges as well, though it is already available as a product.

Reuters Trading for Foreign Exchange

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References :
http://www.rbnz.govt.nz/statistics/exandint/b1/3401943.pdf
http://www.imf.org/external/pubs/ft/wp/2002/wp0228.pdf
http://articles.economictimes.indiatimes.com/2010-08-24/news/27574810_1_currency-futures-exchange-traded-currency-interest-rate
http://glossary.reuters.com/index.php?title=FX_Swap
http://thomsonreuters.com/content/financial/pdf/s_and_t/RTFXQuickStartGuidev2.0_2.pdf
http://thomsonreuterseikon.com/
http://thomsonreuters.com/products_services/financial/financial_products/a-z/trading_foreign_exchange/