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.

RELATED TERMS
  1. Forward Margin

    The difference between the spot rate and the estimated future ...
  2. LIBOR Flat

    An interest rate benchmark used to establish the floating interest ...
  3. Forward Rate

    A rate applicable to a financial transaction that will take place ...
  4. LIBOR Scandal

    A scandal in which financial institutions were accused of fixing ...
  5. Key Rate

    The specific interest rate that determines bank lending rates ...
  6. LIBOR Curve

    A graphical representation of various maturities of the London ...
Related Articles
  1. Investing

    Explaining the Spot Rate

    The spot rate is the immediate purchase price posted on exchanges for purchasing commodities, currency and securities.
  2. Markets

    The Importance Of LIBOR In Financial Markets

    What is LIBOR and why are its interest rates so important to the financial markets?
  3. Markets

    An Introduction To LIBOR

    This influential rate is published daily in Britain, and felt all around the world.
  4. Trading

    Using Interest Rate Parity To Trade Forex

    Learn the basics of forward exchange rates and hedging strategies to understand interest rate parity.
  5. Markets

    How Interest Rate Cuts Affect Consumers

    Traders rejoice when the Fed drops the rate, but is it good news for all? Find out here.
  6. Investing

    Understanding the Spot Market

    A spot market is a market where a commodity or security is bought or sold and then delivered immediately.
  7. Investing

    Why BBA LIBOR Was Replaced By ICE LIBOR

    We track the reason behind the change in LIBOR's prefix from BBA to ICE.
  8. Trading

    Managing Interest Rate Risk

    Interest rate risk stems from the possibility that an interest-bearing asset’s value will change due to changing interest rates.
  9. Markets

    10 Countries With Lower Interest Rates Than the US

    Learn about the 10 countries with lower interest rates than the United States and how interest rates indicate a country's economic outlook.
  10. Investing

    What Does Spot Price Mean?

    Spot price is the current price at which a security may be bought or sold.
RELATED FAQS
  1. How is a share premium account taxed?

    Understand the difference between a spot rate and forward rate. Learn why someone would enter into a contract with a spot ... Read Answer >>
  2. How does LIBOR compare to the Federal Reserve rate as an accurate indicator?

    Explore a comparison of the predictive efficacy of the Federal Reserve's fed funds rate and the Intercontinental Exchange's ... Read Answer >>
  3. 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 >>
  4. 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 >>
  5. What are the differences between the Federal Funds Rate and LIBOR?

    Learn the key differences between the federal funds rate and the London Interbank Offered Rate, including currency denomination ... Read Answer >>
  6. How did the LIBOR scandal affect interest rate swaps?

    Find out how the LIBOR scandal directly enriched some interest rate swap traders and harmed others by understating the real ... Read Answer >>
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center