Currency Forward Rate Calculator
FinanceCalculate a currency forward contract's rate using covered interest rate parity.
Forward Exchange Rate
The theoretical forward exchange rate implied by covered interest rate parity.
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Odeh Ahwal0people find this calculator helpful
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Frequently Asked Questions
How is a currency forward rate calculated?
Forward Rate = Spot Rate x (1 + Price-Currency Interest Rate) / (1 + Base-Currency Interest Rate), with each rate pro-rated for the contract length (annual rate x days/360). This follows covered interest rate parity -- the forward rate adjusts to prevent risk-free arbitrage between the two currencies' interest rates.
Why do interest rate differences affect the forward rate?
If one currency offers a higher interest rate, its forward value must trade at a discount to offset that advantage -- otherwise investors could borrow the low-rate currency, convert, earn the higher rate, and lock in a risk-free profit via the forward contract.
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