Which statement describes a forward discount?

A forward discount occurs when the forward exchange rate for a currency pair is lower than the current spot exchange rate for that same pair. This situation typically arises in the context of currency exchange, where the market anticipates that the currency in question will depreciate in value relative to another currency over the given period.

When the forward rate is below the spot rate, it indicates a market expectation that the value of the currency will decrease in the future. For example, if the current spot rate for currency A is 1.20 USD and the forward rate for a month later is 1.15 USD, currency A is trading at a forward discount since the forward rate is less than the spot rate.

This concept is crucial for traders and investors making decisions on hedging or speculating in the foreign exchange markets, as it reflects the anticipated changes in currency value based on various economic factors, including interest rates, inflation, and geopolitical stability.