Forward rate is defined as the rate which is applicable to any situation of financial transaction. This is the rate of capital which is applicable to be taken place in future.
Working of forward rate
Basically the forward rates are based on the spot rates and these rates are fixed and adjusted on the basis of cost of carry and the rate which is used in order to deliver the currency, bond or any product. The biggest advantage of this rate is that it can also be applied and used in future as well. Therefore the processing of forward rate makes it easier for future applications, investments and uses as well. Therefore the forward rates are adjusted and operated as the financial obligations are laid down by the institutions. This is therefore related with the interest rates as well as the loan payment rates.
Forward rate according to Forex
The forward rate having specified by Forex is defined as the agreement according to the obligation of the agreement. In most of the agreements of forward rate made by Forex, it is required that the contract is honored by all the parties involved in the agreement. Usually the forward rate as in case of Forex is defined mostly by the foreign exporters. Usually the exporters with a large export order get the maximum forward rate. There is a specified rate and the exporter is obliged to pay the amount by the due date. Furthermore the forward rate is also used for the hedging processes.