Forward Exchange Rate Calculator Excel

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Forward Exchange Rate Calculator

The current market price (Price Currency / Base Currency).
Annualized interest rate of the quote/price currency (Numerator).
Annualized interest rate of the base currency (Denominator).
ACT/360 (Most Currencies, USD, EUR) ACT/365 (GBP, CAD, AUD, NZD)
Calculated Forward Rate: –
Forward Points (Pips): –
Implied Direction: –
function calculateForwardRate() { // 1. Get input values var spotRate = parseFloat(document.getElementById('spotRate').value); var domesticRate = parseFloat(document.getElementById('domesticRate').value); var foreignRate = parseFloat(document.getElementById('foreignRate').value); var days = parseFloat(document.getElementById('days').value); var basis = parseFloat(document.getElementById('basis').value); // 2. Validation if (isNaN(spotRate) || isNaN(domesticRate) || isNaN(foreignRate) || isNaN(days) || isNaN(basis)) { alert("Please enter valid numeric values for all fields."); return; } if (spotRate <= 0 || days 0) { directionText = "Premium (Base currency strengthens)"; } else if (diff 0 ? "+" + points : points; document.getElementById('direction').innerText = directionText; document.getElementById('result-container').style.display = 'block'; }

Forward Exchange Rate Calculator & Excel Guide

The forward exchange rate is a crucial concept in international finance, allowing businesses and investors to hedge against currency risk. It represents the exchange rate at which a bank agrees to exchange one currency for another at a future date. This tool calculates that rate using the Interest Rate Parity (IRP) theory.

How the Forward Exchange Rate is Calculated

The calculation relies on the relationship between the spot exchange rate and the interest rate differentials between the two currencies involved. The fundamental theory is that the return on a hedged foreign investment should equal the return on a domestic investment.

The standard formula used in this calculator is:

Forward Rate = Spot Rate × [ (1 + rd × (days / basis)) / (1 + rf × (days / basis)) ]

Where:

  • Spot Rate: The current market exchange rate.
  • rd (Price Currency Rate): The interest rate of the domestic (quote) currency.
  • rf (Base Currency Rate): The interest rate of the foreign (base) currency.
  • Days: The number of days until the forward contract matures.
  • Basis: The day count convention (usually 360 for USD/EUR, 365 for GBP/CAD).

How to Create a Forward Exchange Rate Calculator in Excel

If you prefer to perform this calculation in a spreadsheet, you can easily replicate the logic used above. Follow these steps to build your own Forward Exchange Rate Calculator in Excel.

Step 1: Setup Your Data Cells

Enter the following labels in column A and your values in column B:

Cell Value / Label Example Input
A1 Spot Rate 1.2500
A2 Price Currency Interest Rate 5.0%
A3 Base Currency Interest Rate 3.0%
A4 Days to Maturity 90
A5 Day Basis (360 or 365) 360

Step 2: The Excel Formula

In cell B7 (or where you want the result), enter the following formula:

=B1 * ( (1 + B2 * (B4/B5)) / (1 + B3 * (B4/B5)) )

Note: Ensure that cells B2 and B3 are formatted as percentages in Excel, or enter them as decimals (e.g., 0.05 for 5%). If you type "5" meaning 5%, you must divide by 100 in the formula.

Understanding Premium vs. Discount

When analyzing the result, you will often hear terms like "Forward Premium" or "Forward Discount".

  • Premium: If the Forward Rate is higher than the Spot Rate, the Base Currency is trading at a premium. This typically happens when the Price Currency interest rate is higher than the Base Currency interest rate.
  • Discount: If the Forward Rate is lower than the Spot Rate, the Base Currency is trading at a discount. This occurs when the Base Currency has a higher interest rate than the Price Currency.

Example Calculation

Let's say you are looking at the EUR/USD pair (where EUR is the Base and USD is the Price currency).

  • Spot Rate: 1.1000
  • USD Interest Rate (Price): 4.5%
  • EUR Interest Rate (Base): 3.0%
  • Time: 180 days (ACT/360)

Since the USD rate (4.5%) is higher than the EUR rate (3.0%), the denominator will be smaller than the numerator in the relative interest factor equation. However, in the standard formula, the Price currency is in the numerator. Let's check logic: Higher interest rate currency should depreciate in the forward market (trade at a discount) to offset the interest gain.

Using the tool above, the forward rate will be roughly 1.1082. Since 1.1082 > 1.1000, the EUR (Base) is at a premium. This makes sense because you earn less interest holding EUR, so the currency value must appreciate to compensate for the lower yield.

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