According to the term structure today, the implied forward rate between year 2 and 3 is...

According to the term structure today, the implied forward rate between year 2 and 3 is r0(2,3). Two years later, the spot rate r2(2,3) should be the same as the forward rate r0(2, 3). Otherwise, an arbitrage exists. Is this true or false?

Expert Solution

False

Forward rate is the expected spot rate but the expectations might not fully realise. The final spot rate after 2 years will depend on the prevailing conditions.

jeff jeffy answered 2 years ago

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