Question: What Is The Difference Between Spot Rate And Forward Rate?

What is current spot rate?

The spot rate, also referred to as the “spot price,” is the current market value of an asset available for immediate delivery at the moment of the quote..

How do you interpret forward rates?

The forward exchange rates are quoted in terms of points. For example, let’s say the current EUR/USD exchange rate is 1.2823. The forward quote for a 90-day forward exchange rate is +16 points. This 16 points will be interpreted as 16*1/10,000 = 0.0016 above the spot rate.

Why are forward rates higher than spot rates?

Typically, a forward premium reflects possible changes arising from differences in the interest rate between the two currencies of the two countries involved. Forward currency exchange rates are often different from the spot exchange rate for the currency.

What does forward rate mean?

A forward rate is an interest rate applicable to a financial transaction that will take place in the future. … The term may also refer to the rate fixed for a future financial obligation, such as the interest rate on a loan payment.

What is forward exchange rate with example?

Suppose, for example, that a Canadian firm buys $100,000 worth of computer equipment from Japan, and is given 90 days to pay. At the time the selling price is agreed upon the rate of exchange of the yen for the dollar is, let us say, 360 yen equals one Canadian dollar.