Forward Rate: (Multiplying Spot Rate with the Interest Rate Differential): The forward points reflect interest rate differentials between two currencies. A forward premium is a situation in which the forward or expected future price for a currency is greater than the spot price. The forex spot rate is the most commonly quoted forex rate in both the wholesale and retail market. An outright forward, or currency forward, is a currency contract that locks in the exchange rate and a delivery date beyond the spot value date. If the spot rate is high enough, the investor could cancel the forward rate agreement and invest the funds at the prevailing market rate of interest on a new six-month investment. The risk-free rate of return is the theoretical rate of return of an investment with zero risk.

The offers that appear in this table are from partnerships from which Investopedia receives compensation.

The offers that appear in this table are from partnerships from which Investopedia receives compensation. However, a currency forward has little flexibility and represents a binding obligation, which means that the contract buyer or seller cannot walk away if the “locked in” rate eventually proves to be adverse. in einem Jahr Gültigkeit hat. Die Ermittlung erfolgt aus der aktuellen Zinsstrukturkurve. How a Forward Rate Agreement – FRA Hedges Interest Rates If a year from now, the spot rate is US$1 = C$1.0300—which means that the C$ has appreciated as the exporter had anticipated – by locking in the forward rate, the exporter has benefited to the tune of C$35,500 (by selling the US$1 million at C$1.0655, rather than at the spot rate of C$1.0300).

Begriff: Zinssatz, der in der Zukunft, z.B. Forward Rate Agreement [FRA], Forward Swaps, Swaptions). Forward rate agreements (FRA) are over-the-counter contracts between parties that determine the rate of interest to be paid on an agreed upon date in the future. Der FRA-Satz ist beispielsweise eine Forward Rate. Covered interest arbitrage is a strategy where an investor uses a forward contract to hedge against exchange rate risk. Currency futures are a transferable contract that specifies the price at which a currency can be bought or sold at a future date. Forward rate agreements (FRA) are over-the-counter contracts between parties that determine the rate of interest to be paid on an agreed upon date in the future. The Canadian exporter, therefore, enters into a A forward rate is an interest rate applicable to a financial transaction that will take place in the future. Investopedia uses cookies to provide you with a great user experience. If the market spot rate for a new six-month investment is lower, the investor could use the forward rate agreement to invest the funds from the matured t-bill at the more favorable forward rate. Forward contract A contract that specifies the price and quantity of an asset to be delivered in the future. Forward Rates werden bei allen Zinsinstrumenten ermittelt, die erst in der Zukunft erfüllt werden (z.B. A forward market is an over-the-counter marketplace that sets the price of a financial instrument or asset for future delivery. Interest rate parity (IRP) is a theory according to which the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.


The mechanism for computing a currency forward rate is straightforward, and depends on

The currency forward rate is merely based on interest rate differentials and does not incorporate investors’ expectations of where the actual exchange rate may be in the future. The noon average rate contract is a type of currency forward contract that uses the Bank of Canada's average foreign exchange noon rate as a benchmark. The exporter is concerned that the Canadian dollar may have strengthened from its current rate (of 1.0500) a year from now, which means that it would receive fewer Canadian dollars per US dollar.

On the other hand, if the spot rate a year from now is C$1.0800 (i.e.

Note that because the Canadian dollar has a higher interest rate than the US dollar, it trades at a Assume a Canadian export company is selling US$1 million worth of goods to a U.S. company and expects to receive the export proceeds a year from now. By using Investopedia, you accept our

Forward exchange contracts are a mutual hedge against risk as it protects both parties from unexpected or adverse movements in the currencies' future … Forward Contract An agreement to buy or sell an asset at a certain date at a certain price. Currency forwards are over-the-counter (OTC) instruments, as they do not trade on a centralized exchange, and are also known as “outright forwards.” The one-year forward rate in this instance is thus US$ = C$1.0655. Importers and exporters generally use currency forwards to hedge against fluctuations in exchange rates. To mitigate reinvestment risks, the investor could enter into a contractual agreement that would allow him or her to invest funds six months from now at the current forward rate. LIBOR is a benchmark interest rate at which major global lend to one another in the international interbank market for short-term loans. Now, fast-forward six months. Therefore, to compensate for the risk of non-delivery or non-settlement, Forward rates are calculated from the spot rate and are adjusted for the cost of carry.


Bond futures oblige the contract holder to purchase a bond on a specified date at a predetermined price. In effect, the higher yielding currency will be discounted going forward and vice versa.