Implied Rate

What is an 'Implied Rate'

An implied rate is 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.

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RELATED FAQS
  1. How do I convert a spot rate to a forward rate?

    Learn how to convert spot rates to forward rates for financial transactions agreed to today but not to be executed until ... Read Answer >>
  2. What are some securities that have spot rates?

    Learn about the types of assets that have spot rates, and understand how the spot rate is used to determine the fair market ... Read Answer >>
  3. How valuable is the forward rate as an overall economic indicator?

    Find out why the forward rate is considered an important economic indicator, the logic behind this consideration and possible ... Read Answer >>
  4. What is the difference between a forward rate and a spot rate?

    Learn about spot and forward contracts, how spot and forward rates are used for spot and forward contracts, and the difference ... Read Answer >>
  5. How is Libor determined?

    Libor is the major rate used to price debt stock. Libor is actually a set of several benchmarks that reflect the average ... Read Answer >>
  6. How did LIBOR come into use?

    Learn about the significance of the London Interbank Offered Rate, or LIBOR, and the history of how the daily LIBOR became ... Read Answer >>
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