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What is the relevance of covered interest rate parity to forward contract pricing?
Wiki User
∙ 14y ago
In freely traded (not restricted) currency pairs, Covered Interest Parity absolutely drives the forward price. This is through arbitrage
In restricted currencies it may or may not drive the forward price as it is not readily arbitragable.
Wiki User
∙ 14y ago
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IF Covered Interest rate Parity says that interest rate differential equal?
forward/discount rate premium
What is forward premium How does the forward market help in reducing currency risk in international business?
The forward premium arises due to interest differentials between two currencies. In order that the two currencies have the same intrinsic values as they have today and avoid interest arbitrage, the premium/discount comes into effect.The forward rate includes the forwrd premium/discount and so the risk of spot market moving in the wrong way is minimised by entering into a forward contract.
When you choose future contract over forward contract?
When there isn't an active market for the forward contract. Generally, Futures contracts have a much more active open market than forward contracts and have alot more choice in terms of expiration months than forward contracts.
What are the differences between a forward contract a future contract and options?
1) forward contract is not standardised one..it is only traded in OTC(over the counter) where as future contract is a standardised one it is traded in Secondary Market
What best explains what a forward contract is?
A contract to deliver a particular commodity to a buyer sometime in the future.
What has the author Torben Juul Andersen written?
Torben Juul Andersen has written: 'Currency and interest rate hedging' -- subject(s): Financial futures, Foreign exchange futures, Forward exchange, Hedging (Finance), Interest rate futures, Option (Contract), Options (Finance) 'Interest raterisk management' -- subject(s): Forecasting, Interest rates, Investments
What is equity roll-forward?
An equity roll forward allows an investor to maintain the investment position of a contract beyond its initial expiration. This occurs shortly after the initial contract ends.
What is equity roll forward?
An equity roll forward allows an investor to maintain the investment position of a contract beyond its initial expiration. This occurs shortly after the initial contract ends.
What is a forward commitment?
A forward contract is legally binding promise to perform some actions in the future . Forward commitments include forward contracts , future contracts and swaps
What are the Pro and con of forward contract?
personal injury lawyer
What is a forward contract?
A customized contract between two parties to buy or sell an asset at a specified price on a future date. A forward contract can be used for hedging or speculation, although its non-standardized nature makes it particularly apt for hedging.
Reverse repo rate?
A Repurchase agreement (also known as a repo or Sale and Repurchase Agreement) allows a borrower to use a financial security as collateral for a cash loan at a fixed rate of interest. In a repo, the borrower agrees to sell immediately a security to a lender and also agrees to buy the same security from the lender at a fixed price at some later date. A repo is equivalent to a cash transaction combined with a forward contract. The cash transaction results in transfer of money to the borrower in exchange for legal transfer of the security to the lender, while the forward contract ensures repayment of the loan to the lender and return of the collateral of the borrower. The difference between the forward price and the spot price is the interest on the loan while the settlement date of the forward contract is the maturity date of the loan.
