Discount is the difference between the amount of local currency assets in a forward contract calculated at the forward rate and the amount of foreign currency liabilities calculated at the spot rate. That is: when the "quoted currency interest rate" is greater than the "quoted currency interest rate", that is, the exchange points are less than zero.
It is a cost to the enterprise to avoid the risk of foreign exchange rate changes. Foreign exchange brokerage banks in order to avoid the risk of operating foreign exchange, generally set a forward exchange rate different from the spot rate. Enterprise forward contract in foreign currency to the part of the spot exchange rate translation, and the part of the local currency to the forward exchange rate valuation. In the forward contract of selling foreign exchange, the forward rate is usually lower than the spot rate. Enterprises to hedge the cost of foreign exchange rate changes in risk is reflected in the discount.
Take GBP/USD as an example:
If GBP/USD is priced at 1.5030/40. the two-way interest rate for overnight call GBP is 4.00% (deposit), -4.25% (borrow). The two-way interest rate for the overnight call USD is 2.25% (deposit,) - 2.50% (borrowing).
1. Buy GBP/USD
The Swap Point calculated in the above example is -0.63
2. Sell GBP/USD
1.5030 x (2.25%-4.25%) x 1 day/360 days = -0.000083
That is, Swap Point is -0.83 pips
So the overnight swap point of GBP/USD is 0.83/0.63 pips