The EUR/USD forward rate represents the exchange rate at which a bank or broker agrees to exchange Euros for US Dollars (or vice versa) on a specific future date. Unlike the "Spot Rate," which is the price for immediate settlement (usually T+2), the forward rate accounts for the interest rate differential between the Eurozone and the United States.
How It Is Calculated
This calculator uses the Interest Rate Parity (IRP) theory. The core concept is that money should yield the same return regardless of the currency it is held in, once the cost of hedging (the forward contract) is accounted for. If USD interest rates are higher than EUR rates, the USD must trade at a discount in the future to offset the higher interest earned.
The standard formula used for FX forwards (assuming a 360-day year basis for both currencies) is:
Forward Points: The difference between the Forward Rate and the Spot Rate, usually expressed in "pips". If positive, it is a premium; if negative, a discount.
USD Rate vs. EUR Rate: These are the interbank deposit rates (often LIBOR or SOFR for USD, and EURIBOR for EUR) for the specific time horizon selected.
Calculation Example
Let's assume the following market conditions:
Spot Rate: 1.1000
USD Interest Rate: 5.00%
EUR Interest Rate: 3.50%
Time: 90 Days
Since the USD rate (Quote currency) is higher than the EUR rate (Base currency), the Forward Rate should be lower than the Spot Rate (Discount).
Result: The Forward Rate would be approximately 1.1041 (depending on exact day count conventions), reflecting the interest rate differential.
Why Use a Forward Contract?
Businesses engaged in international trade use forward rates to hedge against currency risk. By locking in a rate today for a payment due in 90 days, an importer or exporter removes the uncertainty of fluctuating exchange rates, ensuring they know exactly how much the transaction will cost in their local currency.
function calculateForwardRate() {
// Get inputs
var spot = document.getElementById('spotRate').value;
var days = document.getElementById('days').value;
var usdRate = document.getElementById('usdRate').value;
var eurRate = document.getElementById('eurRate').value;
var resultArea = document.getElementById('result-area');
// Validation
if (spot === "" || days === "" || usdRate === "" || eurRate === "") {
alert("Please fill in all fields to calculate the forward rate.");
return;
}
// Parse numbers
var S = parseFloat(spot);
var t = parseFloat(days);
var rUSD = parseFloat(usdRate) / 100; // Convert percentage to decimal
var rEUR = parseFloat(eurRate) / 100; // Convert percentage to decimal
// Standard FX Day Count Basis (Usually 360 for EUR and USD)
var basis = 360;
// Prevent invalid math
if (isNaN(S) || isNaN(t) || isNaN(rUSD) || isNaN(rEUR) || S <= 0 || t Spot = Premium. If Forward S) {
condition = "EUR trading at Premium";
} else if (forwardRate < S) {
condition = "EUR trading at Discount";
} else {
condition = "Parity";
}
// Interest Rate Differential
var differential = parseFloat(usdRate) – parseFloat(eurRate);
// Display Results
document.getElementById('forwardRateResult').innerText = forwardRate.toFixed(4);
document.getElementById('forwardPointsResult').innerText = pips.toFixed(2);
document.getElementById('conditionResult').innerText = condition;
document.getElementById('diffResult').innerText = differential.toFixed(2) + "% (USD – EUR)";
// Show result area
resultArea.style.display = 'block';
}