forward rate

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Forward rate

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%.

Forward Rate

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.

forward rate

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.
References in periodicals archive ?
The curved forward rate, interacting with the tent-shaped 7, is the sign of risk premia.
The Federal Reserve continued raising the federal funds target thereafter, but the ten-year forward rate continued to fall.
The aim of this paper is to explore the importance of forward rate volatility structures in pricing interest rate cap options.
The hedge consists of a long position in a bond whose maturity equals the beginning date of the forward rate and a short position in a bond whose maturity equals the ending date of the forward rate.
Expectations of monetary tightening were reflected in forward rates, with three-month rates on December Eurodollar futures rising nearly 60 basis points from April 1 to mid-June.
If the spot rate is 1,082 lira per deutsche mark and the one-year forward rate is 1,150, the companies should decide what rate they'll use initially to set the contract price of the product - the spot, the forward or an average of forward rates.
A necessary arithmetic relation exists between the forward rate and the interest differential.
Building a knowledge base for forward rate agreements
A Eurodollar forward rate is also often used as an alternative means for estimating the market's expected path for the fed funds rate, especially for horizons of 6 months or more.
As a goodwill gesture, Zeutsche Bank also offered the following forward rate contracts on the Euro/US dollar if Williams decided to hedge the currency exposure resulting from the Eurobond debt.
Carlton negotiated a very inexpensive 12-month forward rate lock agreement, which was subsequently funded by the lender.

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