In market-based forecasting, a forward rate quoted for a specific date in the future can be used as the forecasted spot rate on that future date.

Question

Quizplus · Accepted Answer

Market-based forecasting assumes that the forward rate quoted for a specific future date reflects the expected spot rate on that future date. This is based on the principle of interest rate parity, which suggests that the forward rate should equal the expected future spot rate plus the interest rate differential between the two currencies. Therefore, using the forward rate as the forecasted spot rate on the future date is a common practice in market-based forecasting.

In Market-Based Forecasting, a Forward Rate Quoted for a Specific