ConverterHub

Forward Rate Calculator

Enter the spot rate, both interest rates and the term to find the forward rate.

How it is calculated

The tool applies covered interest parity with simple interest: F = S × (1 + r_d × t) / (1 + r_f × t), where S is the spot rate quoted as domestic currency per one unit of foreign currency, r_d and r_f are the annual domestic and foreign interest rates entered as percentages, and t = days ÷ 360 (the money-market day count, not 365). It also reports forward points = F − S and premium % = (F − S) ÷ S × 100. A positive premium means the foreign currency trades at a forward premium, which happens when the domestic rate is higher. Spot and days must be above zero. The tool uses one rate for the whole term and ignores bid/offer spreads, fees and credit costs, so a dealer's quoted forward will differ slightly.

Worked example

Spot S = 1.0850 (domestic per foreign), domestic rate 5.25%, foreign rate 3.75%, 90 days, so t = 90 ÷ 360 = 0.25. Numerator: 1 + 0.0525 × 0.25 = 1.013125. Denominator: 1 + 0.0375 × 0.25 = 1.009375. Ratio = 1.003715. Forward = 1.0850 × 1.003715 = 1.0890. Forward points = 1.0890 − 1.0850 ≈ 0.0040, a premium of 0.37% over the 90 days. Swap the two interest rates and the sign flips: the forward falls to 1.0810.

Try this example →

Common mistakes

  • Getting the direction of the quote wrong. The formula assumes spot is domestic currency per one unit of foreign currency; entering the inverse reverses which rate belongs in the numerator.
  • Swapping domestic and foreign rates. Doing so turns a forward premium into a discount, as the 1.0810 result above shows.
  • Entering rates as decimals (0.0525). The fields take percent, so 5.25 means 5.25%.
  • Using 365 as the day count in your head and comparing against this tool. It uses 360, which is the money-market convention for many currencies, but some currencies use 365.
  • Reading the percentage premium as an annual figure. It covers only the term you entered; scale it to the year for comparison.

About this calculator

Covered interest rate parity (CIRP) links the forward exchange rate to the spot rate and the interest-rate gap between two currencies: F = S × (1 + i_domestic × t) / (1 + i_foreign × t), where S is the spot rate, i_domestic and i_foreign are the two interest rates, and t is the term of the contract. The currency with the higher interest rate trades at a forward discount, and the one with the lower rate trades at a forward premium — the parity condition is what keeps arbitrage between spot, forward and money markets from being profitable.

Bank forward desks and FX dealers use this formula to quote forward rates to clients, corporate treasurers use it to hedge the exchange-rate risk on future foreign-currency receivables or payables, and arbitrage and carry traders use it to check whether a quoted forward rate leaves any risk-free profit on the table.

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