Gilt-Edged Market

country markets are at least semi-strong form,

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to preserve market equilibrium there can

only be one set of forward rates from a given spot rate curve. However, this does not mean

that such rates are a prediction because the instant after they have been calculated, new

market knowledge may become available that alters the market's view of future interest

rates. This will cause the forward rate curve to change.

Forward rates are important because they are required to make prices today for dealing

at a future date. For example a bank's corporate customer may wish to fix today the interest

rate payable on a loan that begins in one year from now; what