Final answer:
The original discount or premium on a forward contract is based on the difference between the current spot rate and the agreed-upon forward rate at the time of the contract's initiation.
Step-by-step explanation:
The original discount or premium on a forward contract is determined by the difference between the spot rate on the date the forward contract is signed and the forward rate agreed upon by the parties. This difference reflects the market's expectations for changes in exchange rates over the term of the contract.
If the forward rate is higher than the spot rate, the currency is said to be at a premium; if the forward rate is lower, the currency is at a discount. The presence of a discount or premium can potentially indicate opportunities for arbitrage, hedging strategies, or insight into future market expectations.