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Pure Expectations Theory |
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Pure expectations theory A theory that asserts that forward rates exclusively represent the expected future rates. In other words, the entire term structure reflects the market's expectations of future short-term rates. For example, an increasing slope to the term structure implies increasing short-term interest rates. Related: Biased expectations heories. Pure Expectations Theory In foreign exchange, a theory that forward exchange rates for delivery at some future date are equal to the spot rates for that date. The theory only functions in the absence of a risk premium. Critics contend that the evidence shows that pure expectations do not occur in actual trading. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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