This paper studies the components of the forward discount dynamics in Germany from 1972 to 1996. By using two different frequencies in the analysis, we find that an ARCH structure fits the monthly data well, while an EGARCH structure gives a better description of daily forward discount volatility. Results also suggest that foreign central bank reserves and portfolio investment are significant in the determination of the forward discount trend over the whole period. The causality, however, varies over time. Sign size, and persistence effects on the volatility of the forward discount are all significant, and thus, provide important information to both policy makers and operators in the market. There is also evidence that the volatility of the forward discount dropped after the Plaza Accord.