function calculateForwardRate() {
var spot = parseFloat(document.getElementById('spotRate').value);
var days = parseFloat(document.getElementById('tenorDays').value);
var inrPct = parseFloat(document.getElementById('inrRate').value);
var usdPct = parseFloat(document.getElementById('usdRate').value);
if (isNaN(spot) || isNaN(days) || isNaN(inrPct) || isNaN(usdPct)) {
alert("Please enter valid numeric values for all fields.");
return;
}
// Standard FX Market Convention:
// INR uses Actual/365
// USD uses Actual/360
var inrFactor = 1 + (inrPct / 100) * (days / 365);
var usdFactor = 1 + (usdPct / 100) * (days / 360);
// Interest Rate Parity Formula: F = S * ((1 + Rd*t/365) / (1 + Rf*t/360))
var forwardRate = spot * (inrFactor / usdFactor);
// Forward Points (Difference between Forward and Spot)
var points = forwardRate – spot;
// Annualized Premium Percentage
// Formula: ((Forward – Spot) / Spot) * (365 / Days) * 100
var annualizedPrem = ((forwardRate – spot) / spot) * (365 / days) * 100;
// Interest Rate Differential
var rateDiff = inrPct – usdPct;
// Display Results
document.getElementById('result-container').style.display = 'block';
document.getElementById('resForwardRate').innerText = "₹ " + forwardRate.toFixed(4);
document.getElementById('resPoints').innerText = points.toFixed(4) + " INR";
document.getElementById('resAnnualized').innerText = annualizedPrem.toFixed(2) + "%";
document.getElementById('resDiff').innerText = rateDiff.toFixed(2) + "%";
}
Understanding USD/INR Forward Rates
The USD INR Forward Rate Calculator is a vital tool for importers, exporters, and forex traders dealing with the Indian Rupee and US Dollar pair. A forward rate represents the exchange rate at which two parties agree to exchange currencies at a specific future date. Unlike the "Spot Rate," which is the price for immediate settlement, the forward rate accounts for the interest rate differential between the two currencies.
Why calculate forward rates? Businesses use forward contracts to hedge against currency risk. If an Indian IT company expects a USD payment in 3 months, they lock in a rate today to protect against the Rupee appreciating (which would lower their earnings). Conversely, importers hedge against Rupee depreciation.
How the Calculation Works (Interest Rate Parity)
The theoretical price of a forward contract is derived from the Interest Rate Parity (IRP) theory. This theory states that the difference between the interest rates of two countries is equal to the differential between the forward exchange rate and the spot exchange rate.
The formula used in this calculator respects standard market day-count conventions (Actual/365 for INR and Actual/360 for USD):
Forward Rate: The estimated exchange rate upon contract maturity.
Forward Premium (Points): The absolute difference between the Forward Rate and the Spot Rate. Since interest rates in India are typically higher than in the US, the USD usually trades at a "premium" against the INR in the forward market.
Annualized Premium: The percentage cost of hedging annualized over a year. This is often compared to the interest rate differential to see if the market is priced efficiently.
Example Scenario
Assume the current Spot Rate is 83.50. The Indian interest rate is 6.5%, and the US interest rate is 5.25%. You want to calculate the rate for a 90-day contract.
Because the Indian interest rate is higher, the forward calculation will result in a rate higher than 83.50, indicating that USD/INR is trading at a premium. This compensates the holder of USD for earning a lower interest rate compared to holding INR.
Key Factors Influencing Forward Premiums
Central Bank Policies: Decisions by the RBI (Reserve Bank of India) and the Federal Reserve significantly impact the interest rate gap.
Liquidity: Shortage of dollars in the forward market can skew premiums away from theoretical IRP values.
Speculation: Market sentiment regarding the future direction of the Rupee can temporarily decouple forward rates from pure interest rate math.