The Foreign Exchange (FX) Forward Rate is the exchange rate at which a bank agrees to exchange one currency for another at a future date when two parties enter into a forward contract. It is determined by the spot rate and the interest rate differential between the two currencies involved.
Forward rates are critical for businesses engaging in international trade to hedge against currency risk, and for investors engaging in arbitrage. The logic relies on Interest Rate Parity (IRP), which states that the difference in interest rates between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.
The Mathematical Formula
The standard formula used in this calculator (and most financial institutions) is:
If you prefer to build this calculator in Microsoft Excel or Google Sheets, you can use the following syntax. Assuming your data is arranged in the following cells:
A2: Spot Rate
B2: Quote Interest Rate (entered as %, e.g., 5%)
C2: Base Interest Rate (entered as %, e.g., 3%)
D2: Days
E2: Basis (360 or 365)
Copy and paste this formula into any cell to get the Forward Rate:
Traders often quote forwards in "points" or "pips". To calculate the forward points in Excel, simply subtract the Spot Rate from the Forward Rate and multiply by the pip scale (usually 10,000 for most pairs, or 100 for JPY pairs):
= (Forward_Cell – Spot_Cell) * 10000
How to Interpret the Results
The relationship between the forward rate and the spot rate tells you which currency yields a higher interest rate:
Premium: If the Forward Rate > Spot Rate, the Base Currency is trading at a premium (Quote currency has higher interest rate).
Discount: If the Forward Rate < Spot Rate, the Base Currency is trading at a discount (Base currency has higher interest rate).
For example, if you are looking at EUR/USD and the US interest rate is higher than the Euro interest rate, the forward rate will be higher than the spot rate to compensate for the interest differential.
function calculateFXForward() {
// Retrieve inputs
var spotRate = parseFloat(document.getElementById('fxSpotRate').value);
var days = parseFloat(document.getElementById('fxDuration').value);
var quoteRate = parseFloat(document.getElementById('fxQuoteRate').value);
var baseRate = parseFloat(document.getElementById('fxBaseRate').value);
var basis = parseFloat(document.getElementById('fxBasis').value);
// Validation
if (isNaN(spotRate) || isNaN(days) || isNaN(quoteRate) || isNaN(baseRate) || isNaN(basis)) {
alert("Please enter valid numeric values for all fields.");
return;
}
if (spotRate 0.055)
var rQuoteDecimal = quoteRate / 100;
var rBaseDecimal = baseRate / 100;
// Calculate time factor
var timeFactor = days / basis;
// Calculate numerator: 1 + (Quote Rate * Time)
var numerator = 1 + (rQuoteDecimal * timeFactor);
// Calculate denominator: 1 + (Base Rate * Time)
var denominator = 1 + (rBaseDecimal * timeFactor);
// Calculate Forward Rate
var forwardRate = spotRate * (numerator / denominator);
// Calculate Spread (Forward – Spot)
var spread = forwardRate – spotRate;
// Calculate Forward Points (Standard Pips, usually multiplied by 10,000 for standard pairs)
// Note: For JPY pairs this should ideally be 100, but 10,000 is standard for EUR/USD, GBP/USD logic.
// We will assume standard 4-decimal pairs for the main calculation context.
var points = spread * 10000;
// Display Results
document.getElementById('displayForwardRate').innerText = forwardRate.toFixed(4);
document.getElementById('displaySpread').innerText = spread.toFixed(5);
document.getElementById('displayForwardPoints').innerText = points.toFixed(2);
// Show result box
document.getElementById('fxResult').style.display = 'block';
}