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The forward rate is the future yield on a bond. It is calculated using the yield curve . For example, the yield on a three-month Treasury bill six months from now is a forward rate .
The forward exchange rate depends on three known variables: the spot exchange rate, the domestic interest rate, and the foreign interest rate. This effectively means that the forward rate is the price of a forward contract, which derives its value from the pricing of spot contracts and the addition of information on available interest rates.
When the volatility and drift of the instantaneous forward rate are assumed to be deterministic, this is known as the Gaussian Heath–Jarrow–Morton (HJM) model of forward rates. [ 1 ] : 394 For direct modeling of simple forward rates the Brace–Gatarek–Musiela model represents an example.
Both forward and spot rates tend to act as navigation tools in the diverse world of investments. Primarily, the forward rate indicates forecasted interest rates, while the spot rate provides the ...
A forward interest rate is a type of interest rate that is specified for a loan that will occur at a specified future date. As with current interest rates, forward interest rates include a term structure which shows the different forward rates offered to loans of different maturities.
The forward price (or sometimes forward rate) is the agreed upon price of an asset in a forward contract. [ 1 ] [ 2 ] Using the rational pricing assumption, for a forward contract on an underlying asset that is tradeable, the forward price can be expressed in terms of the spot price and any dividends.