Forward rate

The rate at which locking money away for longer ties exactly with rolling a shorter position. A breakeven computed from today's prices, not a prediction.

Where you will meet it

Forward rate appears in 21 learning outcomes on the CFA syllabus. A few of them:

• Tell apart the spot curve, the par curve and the forward curve
  CFA Level I · Fixed Income

  “When the spot curve slopes upward the par curve lies below it and the forward curve above it, because each forward rate must be high enough to pull the average up.”

• Explain cash flow additivity and apply it to derive an implied forward rate
  CFA Level I · Quantitative Methods

  “Applied to interest rates, investing for two years at the two-year spot rate must equal investing for one year and rolling over at the implied forward rate: (1 + S2)² = (1 + S1) x (1 + f).”

• Explain how the rate on an interest rate forward contract is fixed
  CFA Level I · Derivatives

  “An interest rate forward, or forward rate agreement, fixes today a rate that will apply to a future period on a notional principal.”

• Read and explain quotes for spot and forward exchange rates
  CFA Level I · Economics

  “A forward rate is not a forecast — it is the spot rate adjusted for the interest rate differential, because otherwise borrowing in one currency and lending in the other would be free money.”

Learn it properly

• CFA Level I 2027 curriculum changes: what is new and what was cut Guide

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with F · Glossary