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You tell me. The IR parity is a statement of an arbitrage: that if can exchange my amount in currency A into another currency B, invest it and enter a forward spot trade to get back my currency A at a greater effective rate than the rate in currency A, then I have an arbitrage. The trades for the arbitrage, therefore, are a Spot FX trade, lend currency B, ...


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Per @dm63, these yield curves are basically smoothed curves that best fit the prices/yields of bonds traded in the secondary market. However, they reflect much more than market expectations. Refer to Deriving Interest Rates for details.


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Yes, yield curves are a pictorial representation of the current secondary market yields of government securities (gilts, in the UK). These market yields are determined largely by expectations about what the central bank will do to short term rates over time.


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This is all theoretical and real life will diverge from the theory The spot rates and forward rates are linked. Spot rate for the nth period should equal the product of all the forward rates up to that period. i.e Let Spot{n} = spot rate for nth period Let Forw{k,j} = forward rate to period j at period k Let X_m be the m'th period. Then (1+Spot{n})^n =...



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