Implied Rate


DEFINITION of 'Implied Rate'

An interest rate that is determined by the difference between the spot rate and the forward/futures rate. The degree of relative costliness of a future rate can be assessed by comparing the implied rate with the spot rate.

Calculated as:

Implied Rate

BREAKING DOWN 'Implied Rate'

For example, if the present spot rate of LIBOR is 5% and the forward rate for LIBOR is 6%, the implied rate is 1%. This situation merits the impression that the future rate for borrowing will be more expensive.

  1. LIBOR

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  2. Forward Rate

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  4. Spot Price

    The current price at which a particular security can be bought ...
  5. Swap

    A derivative contract through which two parties exchange financial ...
  6. Hedge

    Making an investment to reduce the risk of adverse price movements ...
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