Forward Rate

Accounting Print Email

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.

Uses of forward rate

There are many applications of forward rate. The most prominent of these applications is that it is widely being used for the hedging purposes. Moreover in currency markets the forwards rates of currencies are being followed actively. There are specific requirements for which the currency forward rates are adjusted. These requirements have fixed contract tenures and sizes. In addition to this, the contract sizes are also different which means that the expiry dates and other clauses of the agreements cannot be customized or extended. In many of the context bonds, the forward rates are also there to determine the future values.

See also

Login to ReadyRatios


Have you forgotten your password?

Are you a new user?

Login As
You can log in if you are registered at one of these services: