Explain the difference between spot and forward exchange rates. What is foreign exchange premium?

Explain the difference between spot and forward exchange rates. What is foreign exchange premium? 

Ans. Spot exchange rate refers the quoted price for foreign exchange is to be delivered at once, or in two days for inter-bank transactions. For example, ¥114/ $ is a quote for the exchange rate between the Japanese yen and the U.S. dollar. We would need 114 yen to buy one U.S. dollar for immediate delivery. Forward Exchange rate is the quoted price for foreign exchange to be delivered at a specified date in future. For example, assume the 90 days forward rate for the Japanese yen is quoted as ¥112/$. No currency is exchanged today, but in 90 days it will take 112 yen to buy one U.S. dollar. This can be guaranteed by a forward exchange contract. Forward discount or premium is the difference between the spot and forward exchange rate. To calculate this, using quotes from the previous two examples, one formula is: 

Where S is the spot exchange rate, F is the forward rate, and n is the number of days until the forward contract becomes due. Devaluation of a currency is nothing but to a drop in foreign exchange value of a currency which is pegged to another currency or gold. In other words, the par value is reduced. The opposite of devaluation is revaluation. To calculate devaluation as a percentage, one formula is:

Depreciation, deterioration or weakening of a currency refers to a drop in the foreign exchange value of a floating currency. Soft or weak defined a currency is expected to depreciate or devaluate relative to major currencies. It also refers to currencies whose values are being artificially sustained by their governments. A currency is considered hard or strong if it is expected to revalue or appreciate relative to major trading currencies.