See Husted and Melven on the forward FX market. Appreciation and depreciation. Changes in the relative prices of currencies. We use these terms instead of just saying higher, lower, more expensive, cheaper, etc., to stress that the FX is a relative price, not an absolute price. Cross rates .
Cross rates are important in arbitrage transactions.
FX arbitrage is extremely efficient today due to the telecommunications and calculation technology available, so markets quickly are moved to consistent worldwide equilibria by profit-seeking arbitrageurs. Forward premium and discount. There are many reasons for a forward premium or discount, so one must be very careful in interpreting this condition. In this situations, the forward rate is a leading indicator of spot rate movements. The forward rate, however, is often used as part of an investment strategy called covered interest arbitrage , which takes advantage of international interest rate differences.