What is the 'Implied Rate'
The implied rate is the difference between the spot interest rate and the interest rate for the forward or futures delivery date. For example, if the current U.S. dollar deposit rate is 1% for spot and 1.5% in one year's time, the implied rate is the difference of 0.5%. Or, if the spot price for a currency is 1.050 and the futures contract price is 1.110, the difference of 5.71% is the implied interest rate.
In both of these examples, the implied rate is positive, which indicates that the market expects future borrowing rates to be higher than they are now.
BREAKING DOWN 'Implied Rate'
The implied interest rate gives investors a way to compare returns across investments and evaluate the risk and return characteristics of that particular security. An implied interest rate can be calculated for any type of security that also has an option or futures contract.
To calculate the implied rate, take the ratio of the forward price over the spot price. Raise that ratio to the power of 1 divided by the length of time until the expiration of the forward contract. Then subtract 1.
implied rate = (forward / spot) raised to the power of (1 / time)  1
where time = length of the forward contract in years
Example Implied Rate Calculations for Different Markets
If the spot price for a barrel of oil is $68 and a oneyear futures contract for a barrel of oil is $71, the implied interest rate is:
implied rate = (71/68) 1 = 4.41 percent
Divide the futures price of $71 by the spot price of $68. Since this is a oneyear contract, the ratio is simply raised to the power of 1 (1 / time). Subtract 1 from the ratio and find the implied interest rate of 4.41 percent.
Stocks Example:
If a stock is currently trading at $30 and there is a twoyear forward contract trading at $39, the implied interest rate is:
implied rate = (39/30) raised to the (1/2) power  1 = 14.02 percent
Divide the forward price of $39 by the spot price of $30. Since this is a twoyear futures contract, raise the ratio to the power of 1/2. Subtract 1 from the answer to find the implied interest rate is 14.02 percent.
Currencies Example:
If the spot rate for the euro is $1.2291 and the oneyear futures price for the euro is $1.2655, the implied interest rate is:
implied rate = (1.2655 / 1.2291)  1 = 2.96 percent
Calculate the ratio of the forward price over the spot price by dividing 1.2655 by 1.2291. Since this is a oneyear forward contract, the ratio is simply raised to the power of 1. Subtracting 1 from the ratio of the forward price over the spot price results in an implied interest rate of 2.96 percent.

Forward Discount
A forward discount occurs when the expected future price of a ... 
Forward Margin
The forward margin reflects the difference between the spot rate ... 
Forward Points
Forward points are the number of basis points added to or subtracted ... 
Implied Call
An implied call is the right borrowers have to pay back a mortgage ... 
Spot Rate
Spot rate is the price quoted for immediate settlement on a commodity, ... 
Implied Authority
Implied authority refers to an agent with the jurisdiction to ...

Trading
Combining Forex Spot And Futures Transactions
The spot, futures and option currency markets can be traded together for maximum downside protection and profit. 
Trading
How To Lock In An Exchange Rate
Currency risk can be effectively hedged by locking in an exchange rate through the use of currency futures, forwards, options, or exchangetraded funds. 
Trading
An Option Strategy for Trading Market Bottoms
A reverse calendar spread offers a lowrisk trading setup with profit potential in both directions. 
Trading
The money market hedge: How it works
Hedge foreign exchange risk using the money market, which includes Treasury bills, bankers’ acceptances and commercial paper. 
Investing
AMD Could Rise 10% Despite Results, Trades Indicate
Advanced Micro stock tanked even though its 3Q earnings beat estimates because its 4Q outlook is weak. 
Tech
Price Difference In Bitcoin Futures and Spot Markets Presents Arbitrage Opportunity
Traders can make easy money by arbitraging the price difference in bitcoin futures contracts and spot market prices. 
Investing
Micron Could Rise At Least 15%, Options Trades Show
The options market is projecting that Micron's stock price will rise, but so will volatility. 
Trading
The Anatomy of Options
Find out how you can use the "Greeks" to guide your options trading strategy and help balance your portfolio.

What is the relationship between implied volatility and the volatility skew?
Learn what the relationship is between implied volatility and the volatility skew, and see how implied volatility impacts ... Read Answer >> 
How accurate is the forward rate in predicting interest rates?
Find out why forward rates are inconsistent and limited predictors of actual future interest rates, primarily because the ... Read Answer >> 
What is the difference between trading currency futures and spot FX?
The main difference between currency futures and spot FX is when the physical exchange of the currency pair takes place. Read Answer >>