Forward rate
MarketsDefinition
The rate today for a transaction that will occur at a future date. Derived from current rates and cost-of-carry. Used in FX (forward outright), interest rates (FRA, OIS), and commodities (futures).
Forward rates are NOT predictions; they're no-arbitrage prices given current spot rates and forward-rate parity. Persistent biases (the "forward rate puzzle" in FX) suggest forwards underestimate eventual moves.
Forward rates are NOT predictions; they're no-arbitrage prices given current spot rates and forward-rate parity. Persistent biases (the "forward rate puzzle" in FX) suggest forwards underestimate eventual moves.