11.2.2 Derivation of Exchange Rate Forecasts

With the Forecast Rates Assumption Rule, exchange rates can be forecast as a function of the interest rate scenarios. Each currency has a reference yield curve that drives the parity exchange rate relationships between this currency and other currencies. The two methods that require interest rate forecasts are forward and parity.

If the reference IRC is in a yield-to-maturity format, the system converts the rate to a zero-coupon yield format before calculation of the Exchange Rate.