Discount

(1) Securities amount (stated in a currency or a percent) by which the selling or purchase price of a bond is less than its face amount or which the market price of an exchange-traded fund is below its net asset value. For example, in foreign exchange the term refers to a situation where a currency can be brought more cheaply for a future date than for immediate delivery. These discounts can take place when for example the forward rate is lower than spot rate or an option that is trading for less than its intrinsic value.
(2) Interest deducted prior to advancing or lending money against outstanding invoices. In trade terms it can mean the purchase of a future payment obligation, at a discount. For example, where a bank purchases the future amount due under a bill of exchange it will pay the face value of the bill less its discount charge. This discount charge will consist of any fees, its cost of funds for the period and its required risk margin and will be calculated for the period between discount and the due date. This cost will be deducted from the face value, with the net amount (present value) paid out.