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| {{distinguish|forward price|forward exchange rate}}
| | I'm Myles (27) from Oxnard, United States. <br>I'm learning Turkish literature at a local high school and I'm just about to graduate.<br>I have a part time job in a university.<br><br>my webpage ... [http://www.ultimatefunthemes.com/2013/03/06/sneakpeek/ Fifa coin Generator] |
| The '''forward rate''' is the future yield on a [[bond (finance)|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''.<ref>{{Citation |last=Fabozzi |first=Vamsi.K|title=The Handbook of Fixed Income Securities |edition=Seventh |location=New York |publisher=kvrv |year=2012 |isbn=0-07-144099-2 |page=148 }}.</ref>
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| ==Forward rate calculation==
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| To extract the forward rate, one needs the [[Zero-coupon bond|zero-coupon]] [[yield curve]]. The general formula used to calculate the forward rate is:
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| :<math>r_{t_1,t_2} = \left(\frac{(1+r_2)^{d_2}}{(1+r_1)^{d_1}}\right)^{\frac{1}{d_2-d_1}} - 1 </math>
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| <math>r_{t_1,t_2} </math> is the forward rate between term <math> t_1 </math> and term <math> t_2 </math>,
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| <math> d_1 </math> is the time length between time 0 and term <math> t_1 </math> (in years),
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| <math> d_2 </math> is the time length between time 0 and term <math> t_2 </math> (in years), | |
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| <math> r_1 </math> is the zero-coupon yield for the time period <math> (0, t_1) </math>,
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| <math> r_2 </math> is the zero-coupon yield for the time period <math> (0, t_2) </math>,
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| === Derivation ===
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| We are trying to find the future interest rate for time period <math>(t_1, t_2)</math>, given the rate <math>r_1</math> for time period <math>(0, t_1)</math> and rate <math>r_2</math> for time period <math>(0, t_2)</math>. To do this, we solve for the interest rate <math>r_{t_1,t_2}</math> for time period <math>(t_1, t_2)</math> for which the proceeds from investing at rate <math>r_1</math> for time period <math>(0, t_1)</math> and then [[reinvestment|reinvesting]] those proceeds at rate <math>r_{t_1,t_2}</math> for time period <math>(t_1, t_2)</math> is equal to the proceeds from investing at rate <math>r_2</math> for time period <math>(0, t_2)</math>. Or, mathematically:
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| :<math>(1+r_1)^{d_1}(1+r_{t_1,t_2})^{d_2-d_1} = (1+r_2)^{d_2}</math>
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| Solving for <math>r_{t_1,t_2}</math> yields the above formula.
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| == Related instruments ==
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| * [[Forward rate agreement]]
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| * [[Floating rate note]]
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| A forward discount is when the forward rate of one currency relative to another currency is higher than the spot rate.
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| A forward premium is when the forward rate of one currency relative to another currency is lower than the spot rate.
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| == See also ==
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| *[[Forward price]]
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| == References ==
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| {{Reflist}}
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| {{Portfilo market}}
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| [[Category:Financial economics]]
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I'm Myles (27) from Oxnard, United States.
I'm learning Turkish literature at a local high school and I'm just about to graduate.
I have a part time job in a university.
my webpage ... Fifa coin Generator