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Hard · Brainteasers · Quant Trader interview question · forward-rate-agreement, interest-rates, quantitative-finance, arbitrage
You are a trader evaluating a Forward Rate Agreement (FRA). The current spot rate for a 1-year maturity is 2% and the current spot rate for a 2-year maturity is 3%. Assume annual compounding. What is the approximate 1-year forward rate, 1 year from today (the 1y-1y forward rate)? Remember to think about how forward rates are derived from spot rates and the relationship between them.