Forward Exchange Rate Calculator
Calculate forward exchange rates using interest rate parity.
Enter spot rate, two interest rates, and days to get the forward rate and forward points.
Forward Exchange Rates — Interest Rate Parity
A forward exchange rate is not a prediction of where a currency will trade in the future. It is the theoretically fair exchange rate for a future date, derived from the current spot rate and the interest rate differential between two currencies.
Why forward rates exist
If USD pays 5% interest and EUR pays 2%, an investor could borrow EUR, convert to USD, earn interest, then convert back — pocketing the rate difference risk-free. To eliminate this arbitrage, the market adjusts the forward rate so the currency with the higher interest rate trades at a forward discount. This mechanism is known as Covered Interest Rate Parity (CIP) and it holds tightly in major currency markets.
The formula (simple interest method):
Forward Rate = Spot Rate x (1 + r_quote x t) / (1 + r_base x t)
Where:
- r_base = annual interest rate of the base currency (the left-side currency of the pair)
- r_quote = annual interest rate of the quote currency (the right-side currency)
- t = time in years = days / day count basis (360 for most pairs, 365 for GBP and some others)
Forward points and pips
Forward Points = Forward Rate minus Spot Rate
If forward points are positive, the base currency is at a forward premium. If negative, the base currency is at a forward discount.
In pips: Forward Pips = Forward Points x 10,000 (for 4-decimal pairs like EUR/USD). For JPY pairs (2-decimal), multiply by 100 instead.
Premium vs discount
A currency is at a forward premium when its interest rate is lower than the paired currency. A currency is at a forward discount when its interest rate is higher than the paired currency.
Example — EUR/USD: If USD rates (5%) exceed EUR rates (2%), USD is at a forward discount vs EUR. The forward EUR/USD will be higher than spot — you get more USD per EUR in the forward market. This also means EUR is at a forward premium vs USD, because EUR has the lower rate.
Day count convention
Most currency pairs use a 360-day basis (Actual/360). GBP pairs and some Nordic currencies use 365 days (Actual/365). The choice matters most for longer maturities — for 30-day forwards the difference is minimal.
Who uses forward rates?
Importers and exporters lock in forward rates to eliminate currency risk on future transactions. Asset managers hedge overseas investment returns back to their base currency. Banks quote forward rates to corporate clients as part of standard FX hedging services. Central banks monitor the forward curve to gauge market expectations for future monetary policy.