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What is a Forward Rate?

In: The Exporter’s & Importer’s Handbook on Foreign Currencies

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  • A. D. P. Edwards

Abstract

A forward rate in no way reflects what the bank thinks the spot rate is likely to be at some future date. No foreign exchange dealer is in the guessing game, and in order to understand the reason why this is the case one has to refer back to the days when the Euro-currency market was being established in London. At that time no country had ever set out to establish a money market of this kind and consequently no one knew what the ground rules for running such a market should be. The banks in London therefore looked to the Bank of England in order to conceive a set of ground rules on which such a market should operate. After several months they came up with an appropriate set of rules within which the Bank of England insisted on the observance of the ‘golden rule’ principle that no bank should speculate in currencies.

Suggested Citation

  • A. D. P. Edwards, 1990. "What is a Forward Rate?," Palgrave Macmillan Books, in: The Exporter’s & Importer’s Handbook on Foreign Currencies, chapter 7, pages 40-45, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-11852-6_8
    DOI: 10.1007/978-1-349-11852-6_8
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