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    Swapnil Penkar
    The document defines spot rate as the price quoted for immediate settlement of a commodity, security, or currency, normally within one or two business days. It defines forward rate as the price used to determine futures contract prices and accounts for holding costs, appreciation, and demand when delivering an asset at a future date. Determinants of spot and forward rates include government policy, interest rate parity, and balance of payment changes. A formula is provided to calculate the forward rate between two terms based on interest rates and time lengths.

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    Presentation 1

    Uploaded by

    Swapnil Penkar
    3 views4 pages
    The document defines spot rate as the price quoted for immediate settlement of a commodity, security, or currency, normally within one or two business days. It defines forward rate as the price used to determine futures contract prices and accounts for holding costs, appreciation, and demand when delivering an asset at a future date. Determinants of spot and forward rates include government policy, interest rate parity, and balance of payment changes. A formula is provided to calculate the forward rate between two terms based on interest rates and time lengths.

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    The document defines spot rate as the price quoted for immediate settlement of a commodity, security, or currency, normally within one or two business days. It defines forward rate as the price used to determine futures contract prices and accounts for holding costs, appreciation, and demand when delivering an asset at a future date. Determinants of spot and forward rates include government policy, interest rate parity, and balance of payment changes. A formula is provided to calculate the forward rate between two terms based on interest rates and time lengths.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
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    3 views4 pages

    Presentation 1

    Uploaded by

    Swapnil Penkar
    The document defines spot rate as the price quoted for immediate settlement of a commodity, security, or currency, normally within one or two business days. It defines forward rate as the price used to determine futures contract prices and accounts for holding costs, appreciation, and demand when delivering an asset at a future date. Determinants of spot and forward rates include government policy, interest rate parity, and balance of payment changes. A formula is provided to calculate the forward rate between two terms based on interest rates and time lengths.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
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    Spot Rate

    • What Does Spot Rate Mean?


    The price that is quoted for immediate
    settlement on a commodity, a security or a
    currency . Spot settlement is normally one or
    two business days from trade date.

    • The spot price reflects market expectations of


    future price movements for a security or non-
    perishable commodity (e.g., gold).
    Forward Rate
    • What Does Forward Rate Mean?
    The amount that it will cost to deliver a
    currency, commodity, or some other asset some
    time in the future.

    • The forward rate is the price used to determine


    the price of a futures contract. It accounts for
    holding costs, appreciation and demand for the
    good.
    Determinants of SPOT &
    FORWARD Rate

    government policy

    interest rate parity

    balance of payment changes


    Formula

    Where we assume that all involved tenors are at most 1 year

    is the forward rate between term t1 and term t2,

    d1 is the time length between time 0 and term t1 (in years),

    d2 is the time length between time 0 and term t2 (in years),

    r1 is the interest rate for the period time 0 to term t1 ,

    r is the interest rate for the period time 0 to term t

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