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A projection of future interest rates calculated from either spot rates or the yield curve. For example, suppose the one-year government bond was yielding 2% and the two-year bond was yielding 4%. The one year forward rate represents the one-year interest rate one year from now. You would solve the formula (1.04)^2=(1.02)(1+F). F is 6.03%.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
The interest rate or exchange rate on a forward contract with a certain expiration. Some analysts believe that forward rates accurately predict future spot rates, though others dispute this.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
1. The expected yield on a given fixed-income security at a particular time in the future. For example, if the yield on 6-month Treasury bills is expected to be 10.5% in a year, this yield is the forward rate on 6-month bills.
2. The rate at which a particular currency or commodity may be purchased on a forward contract.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.