why are we using forward rates for calculating receipts from swap why not current annual spot rates in part a?
Ask the Tutor ACCA AFM
SEMBLIAN CO JUNE 2012
12y ago#1Because the flows are not occurring now, but in 1, 2 years time etc..
We would actually use the spot rates in 1 year, in 2 years etc., but obviously we do not know now what they will be. So we have used the forward rates to best see what we expect. (or of course, rather than use the actual spot rates and be at risk, why not fix the rates now by using the forward rates.
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