The yield on a zero-coupon bond for a given maturity, used to discount a single cash flow at that date. A set of spot rates forms the spot curve.
Where you will meet it
Spot rate comes up in 23 learning outcome notes across the FRM syllabus.
A few of them:
Foreign Exchange Markets FRM Part I · Financial markets and products
“The two legs of a swap offset each other's exposure to the spot rate.”
Pricing Conventions, Discounting, and Arbitrage FRM Part I · Valuation and risk models
“A semiannual spot rate r converts to a factor as Discount factor = (1 + r ÷ 2)^(−2t).”
The US Dollar Shortage in Global Banking and the International Policy Response FRM Part II · Liquidity and treasury risk measurement and management
“The Federal Reserve gave a foreign central bank dollars in exchange for that central bank's own currency at the current spot rate, with a commitment to reverse the trade at the same rate on a set date.”
VaR Mapping FRM Part II · Market risk measurement and management
“Cash-flow mapping discounts every coupon and principal payment at its own spot rate and allocates each present value to the neighbouring vertices, preserving value and risk.”
GARP does not endorse, promote, review, or warrant the accuracy of the products or services offered by Charta Learning, nor does it endorse any pass rates claimed by Charta Learning. Further, GARP is not responsible for any fees or costs paid by the user to Charta Learning. FRM® and GARP® are registered trademarks owned by the Global Association of Risk Professionals, Inc. The questions, explanations and study notes are written for this product and are not GARP curriculum material.