Forward Price

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Related to Forward rates: Forward exchange rates

Forward Price

The agreed upon price of the underlying asset in a forward contract. When a forward contract is made, the parties agree to buy/sell the underlying at a certain point in the future at a certain price. The price is negotiated directly between the parties, unlike a futures contract, which trades on an exchange. Partly because there is little secondary market for forward contracts, determining the forward price is a zero-sum game: one party will gain on the contract and one will lose.
References in periodicals archive ?
The change in fair value of a foreign currency forward contract designated as a cash flow hedge with hedge effectiveness based on changes in forward rates is currently recognized in other comprehensive income.
(7) By using Jensen's Inequality, we show that forward rates cannot be expected to be unbiased estimators of corresponding future spot rates for both buyers and sellers of the same forward currency contracts.
The yield to maturity can be calculated from the instantaneous forward rates as:
We recommend a different methodology for projecting future cash flows: a mark-to-market approach that calculates the plan's expected future interest-crediting rates using implied forward rates from the Treasury yield curve.
After having knowledge of the forward rates curve of Diebold and Li (2006), the spot rate for a zero-coupon with expiration in Tau can be determined as the weighted average of the forward rates, and in this point we do the following derivation based on the original work.
In contrast, the data on forward rates, which are not given to short-lived swings, vary less.
For example, one year forward rates on coupon swaps are about 25 basis points higher than the current spot rate of about 161.
It however, fails to account for changing forward rates when hedging successive income/expense streams.
Fed Funds Curves using Fed Funds basis spreads versus LIBOR rates meet the need for separate forecasting and discounting curves for pricing collateralised OTC derivatives with USD cash flows, while Smooth Forward Curves provide better pricing accuracy and more precise risk measurement by smoothing any spikes in forward rates using the Monotone Convex Spline method.
When researchers tested for cointegration between spot and forward rates they found [s.sub.t+1] and [f.sub.t] to be cointegrated for almost every currency and time period studied, e.g., Baillie and Bollerslew, (14) Hakkio & Rush and Copeland.
st and [f.sub.t/t-1] are the current spot and forward rates with a maturity of t at t-1.