Currency Forward Calculator
Enter the spot price, the interest rate of each currency and the number of days to see the forward price set by covered interest parity.
Updated
Currency Forward Calculator
Our Currency Forward Calculator works out the exchange rate you can lock in today for a currency trade that settles on a later date. Type the spot price, the yearly interest rate of the price currency, the yearly interest rate of the base currency and the number of days in the contract. It returns the forward price from covered interest parity, using simple interest on a 360-day year, along with each interest rate for the period, the gap between forward and spot and the yearly forward premium. It is useful for importers and exporters pricing a hedge, treasury teams checking a bank quote and students of international finance.
Quick answer
The forward price is spot price × (1 + price currency rate × days ÷ 360) ÷ (1 + base currency rate × days ÷ 360): with a spot price of 1.25, rates of 4% and 2.5% and 90 days, 1.25 × 1.01 ÷ 1.00625 ≈ 1.254658.
- Period rate: yearly interest rate × days ÷ 360, for each currency.
- Forward price: spot price × (1 + price period rate) ÷ (1 + base period rate).
- Price rate above base rate: the forward price is higher than spot.
- Price rate below base rate: the forward price is lower than spot.
What Is a Currency Forward?
A currency forward is an agreement to exchange one currency for another on a set future date at a price fixed today. That fixed price is the forward price, also called the forward exchange rate. No money changes hands until the settlement date, so both sides know in advance exactly what they will pay and receive.
The forward price is not a guess about where the exchange rate is heading. It is worked out from three things that are known today: the spot price, the interest rate on each of the two currencies, and the time until settlement.
Currency Forward Formula
÷ (1 + rb × d ÷ 360)
- F: the forward price.
- S: the spot price, in units of the price currency for one unit of the base currency.
- rp: the yearly interest rate of the price currency, as a decimal.
- rb: the yearly interest rate of the base currency, as a decimal.
- d: the number of days in the forward contract.
Each rate is first cut down to the contract period by multiplying it by days ÷ 360. This is simple interest on a 360-day year, the usual money market convention for contracts of up to a year.
How to Calculate a Currency Forward Price
The spot price is 1.25, the price currency earns 4% a year, the base currency earns 2.5% a year and the contract runs for 90 days:
2.5% × 90 ÷ 360 = 0.625%
F = 1.25 × 1.01 ÷ 1.00625
= 1.2625 ÷ 1.00625
≈ 1.254658
- Find the price currency period rate. 4% × 90 ÷ 360 = 1%.
- Find the base currency period rate. 2.5% × 90 ÷ 360 = 0.625%.
- Grow the spot price at the price currency rate. 1.25 × 1.01 = 1.2625.
- Divide by the base currency growth. 1.2625 ÷ 1.00625 ≈ 1.254658.
The forward price is 0.004658 above spot, a forward premium of about 1.49% a year.
Why Interest Rates Set the Forward Price
There are two ways to hold money for 90 days. You can keep one unit of the base currency on deposit, where it grows to 1.00625. Or you can swap it at spot for 1.25 units of the price currency and deposit that, where it grows to 1.2625. A forward contract lets you swap the second amount back on day 90 at a price agreed now.
If that price were anything other than 1.2625 ÷ 1.00625, one route would beat the other with no risk, and traders would pile in until the gap closed. This no-arbitrage rule is called covered interest parity.
Currency Forward Examples
Euro against the US dollar, 180 days. Spot is 1.08 dollars per euro, the dollar rate is 5% and the euro rate is 3%:
3% × 180 ÷ 360 = 1.5%
F = 1.08 × 1.025 ÷ 1.015
= 1.107 ÷ 1.015
≈ 1.09064
The dollar pays more interest than the euro, so the forward price of the euro is above spot.
US dollar against the yen, one year. Spot is 155 yen per dollar, the yen rate is 0.5% and the dollar rate is 5%, for 360 days:
5% × 360 ÷ 360 = 5%
F = 155 × 1.005 ÷ 1.05
= 155.775 ÷ 1.05
≈ 148.357143
Here the base currency (the dollar) pays far more interest, so the forward price is about 6.64 yen below spot, a forward discount of about 4.29% a year.
Price Currency vs Base Currency
An exchange rate prices one unit of the base currency in units of the price currency (also called the quote currency). Getting the two the right way round matters, because swapping the interest rates flips the result.
| Quote | Base | Price |
|---|---|---|
| EUR/USD 1.08 | Euro | US dollar |
| USD/JPY 155 | US dollar | Yen |
| GBP/USD 1.27 | Pound | US dollar |
For EUR/USD at 1.08, one euro costs 1.08 dollars. Enter the dollar interest rate as the price currency rate and the euro interest rate as the base currency rate.
How the Rate Gap and Time Move the Forward
| Interest rates | Forward price |
|---|---|
| Price rate higher | Above spot |
| Base rate higher | Below spot |
| Rates equal | Equal to spot |
The longer the contract, the further the forward price moves from spot. With a spot price of 1.25 and rates of 4% and 2.5%:
| Days | Forward price |
|---|---|
| 30 | 1.251559 |
| 90 | 1.254658 |
| 180 | 1.259259 |
| 360 | 1.268293 |
A Quick Estimate
For a rough answer in your head, add the interest rate gap for the period to the spot price:
F ≈ S × (1 + gap × d ÷ 360)
= 1.25 × (1 + 0.015 × 0.25)
= 1.25 × 1.00375
= 1.2546875
That is very close to the exact 1.254658. The shortcut drifts further from the true figure as the interest rates and the contract length grow, so use the full formula for real pricing.
Forward Premium and Discount
When the forward price is above spot, the base currency is said to trade at a forward premium. When it is below spot, it trades at a forward discount. The "Yearly premium" row shows the gap as a yearly percentage of the spot price:
If you already have a forward quote and only want this percentage, use our Forward Premium Calculator. To see what the interest rate gap earns when the position is not hedged, see the Carry Trade Calculator.
What the Result Leaves Out
- Dealer spreads. Banks quote a bid and an offer around this mid price and add their own margin.
- Day count. A 360-day year is used for both currencies. Some, such as the pound sterling, use 365 days.
- Compounding. Interest is simple, which suits contracts of up to a year. Longer contracts usually compound.
- Which rates to use. Use deposit or money market rates for the same period as the contract, not central bank policy rates.
- Forecasting. The forward price shows the interest rate gap. It does not predict the future spot rate.
The result is for education and planning and is not financial advice.
Key Terms
- Spot price
- The exchange rate for a trade that settles now.
- Forward price
- The exchange rate fixed today for a trade on a future date.
- Base currency
- The currency being priced: the "one unit" in the quote.
- Price currency
- The currency the price is stated in, also called the quote currency.
- Period rate
- A yearly interest rate scaled to the contract: rate × days ÷ 360.
- Interest parity
- The rule that hedged returns in two currencies must be equal.
How to Use the Currency Forward Calculator
- Enter the spot price. Type the current exchange rate, in units of the price currency per unit of the base currency, such as 1.25.
- Enter the price currency rate. Type the yearly interest rate of the price currency as a percent, such as 4.
- Enter the base currency rate. Type the yearly interest rate of the base currency as a percent, such as 2.5.
- Enter the days. Type the number of days until the forward contract settles, such as 90.
- Read and copy the result. The forward price appears as you type, with the working, both period interest rates, the forward minus spot gap and the yearly premium. Press Copy to copy it, or Clear or Esc to start again.
Example: spot price 1.206, price currency rate 6%, base currency rate 2% and 90 days. The result is 1.218, from 1.206 × 1.015 ÷ 1.005.
Who Can Use This Calculator?
Frequently Asked Questions (FAQs)
How do you calculate a currency forward price?
Multiply the spot price by 1 plus the price currency interest rate for the period, then divide by 1 plus the base currency interest rate for the period. Each period rate is the yearly rate × days ÷ 360.
What is the forward price if spot is 1.25, the rates are 4% and 2.5% and the contract is 90 days?
It is about 1.254658. The period rates are 1% and 0.625%, so the forward price is 1.25 × 1.01 ÷ 1.00625 ≈ 1.254658.
What is the currency forward formula?
F = S × (1 + rp × d ÷ 360) ÷ (1 + rb × d ÷ 360), where S is the spot price, rp is the price currency interest rate, rb is the base currency interest rate and d is the number of days.
Which is the price currency and which is the base currency?
The base currency is the one being priced and the price currency is the one the price is stated in. In EUR/USD at 1.08 the euro is the base currency and the US dollar is the price currency.
Why is the forward price different from the spot price?
Because the two currencies earn different interest rates. The forward price offsets the interest rate gap so that holding either currency for the period gives the same hedged return.
When is the forward price higher than the spot price?
When the price currency has a higher interest rate than the base currency. If the base currency has the higher rate, the forward price is lower than spot. If the rates are equal, forward and spot are the same.
What is covered interest parity?
It is the no-arbitrage rule behind the formula. It says that investing in one currency, or converting to another currency, investing there and locking in the return with a forward contract, must give the same result.
Does the calculator use a 360-day or a 365-day year?
It uses simple interest on a 360-day year for both currencies, the money market convention for most major currencies.
Is the forward price a forecast of the future exchange rate?
No. It reflects the interest rate gap between the two currencies today. The spot rate on the settlement date can turn out higher or lower.
Is the Currency Forward Calculator free?
Yes. It is free to use, with no sign-up and no limit on how many times you use it.
Sources
- Corporate Finance Institute. Currency Forward.
- Wikipedia. Forward exchange rate.
- WallStreetMojo. Currency Forward.
- Corporate Finance Institute. Covered Interest Rate Parity (CIRP).
- Wikipedia. Interest rate parity.
- Wikipedia. Currency pair.
- Wikipedia. Day count convention.
Try our Currency Forward Calculator to turn any spot price and pair of interest rates into a forward price.