FORWARD PRICE Meaning and
Definition
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The forward price is a term commonly used in financial markets, particularly in commodities, securities, and foreign exchange. It refers to the anticipated price of an asset or commodity that is agreed upon or set today for delivery or settlement at a future date.
In essence, the forward price is a contractual agreement between two parties to buy or sell an underlying asset, such as a commodity or security, at a predetermined price on a specified future date. This predetermined price is known as the forward price.
Forward prices are typically based on several factors, including the current spot price of the asset, interest rates, supply and demand dynamics, and market expectations. The forward price is often used by traders, investors, and hedgers to manage risk and to plan future transactions.
The term "forward price" can also refer to the implied future price of an investment or security, derived from the current price and the expected future return. In this context, it provides an estimate of the market's expectation of the future value of an investment.
Overall, the forward price serves as a valuable tool for market participants to forecast future market conditions and make informed decisions based on anticipated future prices.
Etymology of FORWARD PRICE
The word "forward price" is formed by combining two separate terms: "forward" and "price".
The term "forward" comes from Old English "forewearde", which means "preceding in time or place". Over time, "forward" evolved to a meaning of "toward the front" or "in advance".
The word "price" originates from Middle English "pris", derived from Old French "pris" or "prise", which means "value" or "worth". It can be traced back to the Latin word "pretium", meaning "price" or "value".
Combining these two words, "forward price" refers to the anticipated or agreed-upon value at which a particular financial instrument, commodity, or asset will be bought or sold in the future.
