ogoluwa

If you come to me today for a loan that will be paid back in 12 months, and you want your cash money right now, then I'll charge you the 12 month spot rate.

If you come to me today and tell me you're going to need a loan in two years, and the loan will be paid back in 12 months after you get your cash money (remember you'll get your money in two years), then we would use the one-year forward rate two-years from today.

There are lots of extra details (such as there isn't an actual loan) but that's the idea. Or are you just asking about the mechanics of the calculation?

And I like saying cash money