Search results
Results from the WOW.Com Content Network
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.
Spot–future parity (or spot-futures parity) is a parity condition whereby, if an asset can be purchased today and held until the exercise of a futures contract, the value of the future should equal the current spot price adjusted for the cost of money, dividends, "convenience yield" and any carrying costs (such as storage).
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.
The forward rate is the future yield on a bond. ... The discount factor formula for period ... Spot rate; References
An alternate statement of this: the rate of effective annual growth that equates the present value with the future value. [1] The terminology is consistent with the above, in that the spot rate is related to the forward rate analogously. A spot rate curve displays these rates over various maturities.
Compared to their futures counterparts, forwards (especially Forward Rate Agreements) need convexity adjustments, that is a drift term that accounts for future rate changes. In futures contracts, this risk remains constant whereas a forward contract's risk changes when rates change. [11]
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 ...
The forward curve is a function graph in finance that defines the prices at which a contract for future delivery or payment can be concluded today. For example, a futures contract forward curve is prices being plotted as a function of the amount of time between now and the expiry date of the futures contract (with the spot price being the price at time zero).