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If someone you were working with argued that the current forward rate quoted on a currency...

If someone you were working with argued that the current forward rate quoted on a currency pair is the market’s expectation of where the future spot rate will end up, what would you say?

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Answer #1

Spot rate refers to the rate that is being qouted immediately at the time of settlement on any security,commodity or currency.

This is a common misconception.Foreign interest rate,spot rate and domestic interest rate are used for the evaluation of the forward rate.It is technically categorised as a foreign currency loan agreement by the financial Institution and the rate makes that evident.Forward rate has been repeatedly tested over time as to its forecasting accuracy.

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