An interest rate which is expected to prevail during a specific future period or at a given date in the future. This rate is implied by the spot rates currently prevailing in the market. In other words, this rate can be derived from an arbitrage condition. There are a number of interpretations of the forward interest rate: a breakeven rate (as it makes an investor indifferent between investing for the whole investment horizon or part thereof), a tool to lock in a rate for some future period, and a rate that reflects the market consensus of future interest rates.
In the real world, forward interest rates may not be realized or predicted with precision. But still are they key in deciding between alternative investments across different time horizons.
