This is the interest rate of the "Price" currency (numerator).
This is the interest rate of the currency being bought/sold (denominator).
360 Days (Most Currencies)
365 Days (GBP, HKD, etc.)
Calculated Forward Rate:0.0000
Forward Points (Pips):0.00
Spread (Forward – Spot):0.0000
function calculateForwardFX() {
// 1. Get input values
var spot = document.getElementById("spotRate").value;
var rQuote = document.getElementById("quoteInterest").value;
var rBase = document.getElementById("baseInterest").value;
var days = document.getElementById("daysMaturity").value;
var basis = document.getElementById("dayCount").value;
// 2. Validate inputs
if (spot === "" || rQuote === "" || rBase === "" || days === "") {
alert("Please fill in all fields to calculate the forward rate.");
return;
}
spot = parseFloat(spot);
rQuote = parseFloat(rQuote);
rBase = parseFloat(rBase);
days = parseFloat(days);
basis = parseFloat(basis);
if (isNaN(spot) || isNaN(rQuote) || isNaN(rBase) || isNaN(days) || spot <= 0 || days = 0 ? "+" : "") + spread.toFixed(5);
document.getElementById("forwardPoints").innerHTML = (points >= 0 ? "+" : "") + points.toFixed(2);
// Show result box
document.getElementById("ferResult").style.display = "block";
}
Understanding Forward Exchange Rates
A Forward Exchange Rate is the exchange rate quoted today for the delivery of funds on a specific future date. Unlike the spot rate, which involves immediate settlement (usually T+2), the forward rate allows businesses and investors to lock in a price for a currency transaction that will occur in the future, effectively hedging against currency risk.
How the Forward Rate is Calculated
The calculation of forward exchange rates is based on the principle of Interest Rate Parity (IRP). This economic theory suggests that the difference between the interest rates of two countries is equal to the difference between the forward exchange rate and the spot exchange rate.
If the forward rate did not align with the interest rate differential, it would create an arbitrage opportunity where traders could make risk-free profits. Therefore, the market naturally adjusts the forward rate to balance these interest factors.
rd: Interest rate of the Quote (Domestic) currency
rf: Interest rate of the Base (Foreign) currency
t: Days to maturity
Basis: Day count convention (typically 360 or 365)
Premium vs. Discount
The relationship between the forward rate and the spot rate determines whether a currency is trading at a premium or a discount:
Premium: If the forward rate is higher than the spot rate, the base currency is trading at a forward premium. This typically happens when the quote currency's interest rate is higher than the base currency's interest rate.
Discount: If the forward rate is lower than the spot rate, the base currency is trading at a forward discount. This occurs when the base currency has a higher interest rate than the quote currency.
Why Use a Forward Rate?
Forward contracts are primarily used for Hedging. For example, an American company expecting to pay 1 million Euros to a supplier in 90 days faces the risk that the Euro might appreciate against the Dollar. By locking in a forward contract today, they know exactly how many Dollars they will need to pay in 90 days, regardless of market volatility.
Common Day Count Conventions
When calculating interest for currency forwards, the day count convention is crucial. Most major currencies (USD, EUR, CHF) use a 360-day year basis. However, currencies associated with the British Commonwealth (GBP, HKD, AUD, NZD, CAD) typically use a 365-day year basis.