The implied rate of futures (futures contracts)- i.e., the rate deduced from the future market price. Suppose the present spot rate of LIBOR is 4% and the forward rate for LIBOR is 5%, the implied rate is the difference between the forward rate and the spot rate:
Implied rate = forward interest rate – spot interest rate
Implied rate = 5% -4% = 1% or 100 basis points
For example, in the case of short-term interest rate (STIR) futures, the quoted price is calculated as 100 minus the 3-month expected implied interest rate (F): 100)minus the 3-month expected implied interest rate (F):rest rate (STIR) futures, the quoted price is calculated as 100 minus the 3-month expected implied interest rate (F):00- F)]
Where: 0.25 denotes the 3 month period related to one year (3/12 = 0.25)
If the implied rate (F) changes by one basis point, the quoted price will change by 25 monetary unit.
