Which of the following statements regarding forward rates is FALSE? A) Forward rates do not account for the market’s tolerance for risk. B) Forward rates may be estimated from spot rates. C) Forward rates contain information regarding market participants’ collective expectations regarding future interest rates. D) By the aggregation of forward rates, spot rates can be estimated. Your answer: A was correct! Spot interest rates are the result of market participant’s tolerance for risk and their collective view regarding the future path of interest rates. If we assume that these results are purely a function of expectations, we can use spot rates to estimate the market’s consensus on forward interest rates Can someone pls help me understand this explanation…
forwards are “expected future spots” so be definition they contain market expectatons of where interest rates are headed.