Forward Rate Calculator

How to Use This Calculator

1. Enter the spot rate of the currency pair (e.g., 1.2500 for EUR/USD)
2. Enter the time period in days for which you want to calculate the forward rate
3. Enter the interest rate for the first currency in the pair
4. Enter the interest rate for the second currency in the pair
5. Click the "Calculate" button to get the forward rate and premium/discount

Working Principle

The forward rate is calculated using the interest rate parity theory, which states that the forward exchange rate should adjust for the interest rate differential between two currencies. The formula used is:

Forward Rate = Spot Rate × (1 + r₂ × t/365) / (1 + r₁ × t/365)

Where:

• Forward Rate - The expected future exchange rate
• Spot Rate - Current exchange rate
• r₁ - Interest rate of the first currency
• r₂ - Interest rate of the second currency
• t - Time period in days

Understanding Forward Premium/Discount

The forward premium or discount is calculated as:

Premium/Discount (%) = [(Forward Rate - Spot Rate) / Spot Rate] × 100%

A positive value indicates a premium (the forward rate is higher than the spot rate), while a negative value indicates a discount (the forward rate is lower than the spot rate).

Example

Suppose you want to calculate the 90-day forward rate for EUR/USD:

• Spot Rate: 1.2500
• Time Period: 90 days
• Interest Rate (EUR): 0.02
• Interest Rate (USD): 0.025

Using our calculator, the 90-day forward rate for EUR/USD would be 1.2533, with a premium of 2.64% over the spot rate.