Currency Forward Rate Calculator — Covered Interest Rate Parity
Find the theoretical forward exchange rate between two currencies given the spot rate and both countries' interest rates, using covered interest rate parity.
% p.a.
% p.a.
months
Compounding convention
The exchange rate locked in today for delivery at maturity
- 1
Term in years
t = 12 ÷ 12 = 1 - 2
Domestic growth factor
(1 + 5 %)^1 = 1.05 - 3
Foreign growth factor
(1 + 3 %)^1 = 1.03 - 4
Forward rate F
1.1 × 1.05 ÷ 1.03 = 1.1214Covered interest rate parity: spot scaled by the ratio of growth factors.
How does this calculator work?
The fair forward exchange rate is F = S × (1 + r_d)^t / (1 + r_f)^t (or S × e^((r_d−r_f)t) for continuous compounding), anchored by covered interest rate parity. Enter spot rate, both countries' annual interest rates and term in months to get the forward rate, forward points in pips, and the annualised forward premium or discount.
Formula
How this is calculated
Covered interest rate parity (CIP) is the cornerstone of FX forward pricing. It states that the forward exchange rate F must equal the spot rate S adjusted by the ratio of the two countries' interest rates over the forward term t (in years). If this relationship did not hold, a trader could lock in a riskless profit by borrowing in the low-rate currency, converting at spot, investing at the high rate and selling the proceeds forward — so arbitrage forces CIP to hold in liquid markets.
For discrete annual compounding the formula is F = S × (1 + r_d)^t / (1 + r_f)^t, where r_d and r_f are the domestic and foreign annual rates as decimals. The continuous-compounding version F = S × e^((r_d − r_f) × t) is equivalent for small rate differentials and is widely used in options pricing (Black–Scholes and extensions). For short maturities and typical G10 rate spreads, both conventions give results within a few pips of each other.
The forward points — (F − S) × 10,000 — are the quoting convention used in interbank FX markets because spot fluctuates continuously while forward points change slowly with rate differentials. Note that CIP is a no-arbitrage pricing identity, not a forecast: the actual future spot rate is driven by macroeconomic factors and on average lies no closer to the forward rate than the current spot (the 'forward premium puzzle').
Frequently asked questions
If the domestic rate r_d > r_f, then (1+r_d)^t > (1+r_f)^t, so F > S: more domestic currency is needed per unit of foreign at maturity. Expressed from the foreign side, the high-rate domestic currency buys fewer foreign units forward — a forward discount. The higher yield is 'priced out' over the term to prevent arbitrage.
Forward points are (F − S) × 10,000 — the deviation from spot in pips. Traders quote them rather than the outright forward because spot fluctuates continuously while forward points move only when interest differentials change. Positive points mean a forward premium for the domestic currency; negative points a discount.
CIP held very tightly until 2008; since then persistent deviations (often 10–50 bps) have been documented in major currency pairs, attributed to bank balance-sheet constraints and demand for dollar funding. This calculator gives the theoretical CIP-implied forward rate — actual market forwards may differ by the CIP basis spread.
TG we-Calculate Editorial Team. (2026). Currency Forward Rate Calculator — Covered Interest Rate Parity [Online calculator]. TG we-Calculate. https://we-calculate.com/calculator/currency-forward-calculator
TG we-Calculate Editorial Team. "Currency Forward Rate Calculator — Covered Interest Rate Parity." TG we-Calculate. 2026. https://we-calculate.com/calculator/currency-forward-calculator.
TG we-Calculate Editorial Team, "Currency Forward Rate Calculator — Covered Interest Rate Parity," TG we-Calculate, 2026. [Online]. Available: https://we-calculate.com/calculator/currency-forward-calculator
@misc{wecalculate_currency_forward_calculator, title = {Currency Forward Rate Calculator — Covered Interest Rate Parity}, author = {{TG we-Calculate Editorial Team}}, howpublished = {\url{https://we-calculate.com/calculator/currency-forward-calculator}}, year = {2026}, note = {TG we-Calculate} }
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