.fx-calculator-container {
max-width: 600px;
margin: 0 auto;
padding: 20px;
background-color: #f8f9fa;
border: 1px solid #e9ecef;
border-radius: 8px;
font-family: Arial, sans-serif;
}
.fx-calculator-title {
text-align: center;
color: #2c3e50;
margin-bottom: 20px;
}
.fx-form-group {
margin-bottom: 15px;
}
.fx-label {
display: block;
margin-bottom: 5px;
font-weight: bold;
color: #34495e;
}
.fx-input, .fx-select {
width: 100%;
padding: 10px;
border: 1px solid #ced4da;
border-radius: 4px;
box-sizing: border-box;
font-size: 16px;
}
.fx-btn {
width: 100%;
padding: 12px;
background-color: #007bff;
color: white;
border: none;
border-radius: 4px;
font-size: 18px;
cursor: pointer;
transition: background-color 0.3s;
}
.fx-btn:hover {
background-color: #0056b3;
}
.fx-result-box {
margin-top: 20px;
padding: 15px;
background-color: #ffffff;
border: 1px solid #dee2e6;
border-radius: 4px;
display: none;
}
.fx-result-item {
margin-bottom: 10px;
font-size: 16px;
color: #495057;
display: flex;
justify-content: space-between;
}
.fx-result-value {
font-weight: bold;
color: #28a745;
}
.fx-article {
margin-top: 40px;
line-height: 1.6;
color: #333;
}
.fx-article h2 {
color: #2c3e50;
border-bottom: 2px solid #007bff;
padding-bottom: 10px;
margin-top: 30px;
}
.fx-article h3 {
color: #34495e;
margin-top: 20px;
}
.fx-article p {
margin-bottom: 15px;
}
.fx-article ul {
margin-bottom: 15px;
padding-left: 20px;
}
.fx-formula-box {
background-color: #eef2f7;
padding: 15px;
border-left: 4px solid #007bff;
font-family: monospace;
margin: 20px 0;
}
Understanding the FX Forward Rate Calculation Formula
The Foreign Exchange (FX) Forward Rate represents the exchange rate agreed upon today for the delivery of currency at a specific future date. Unlike the "Spot Rate," which settles almost immediately (usually T+2), the forward rate accounts for the interest rate differential between the two currencies involved in the pair.
This calculator helps treasurers, investors, and finance students determine the theoretical fair value of a forward contract based on Interest Rate Parity (IRP).
The Mathematical Formula
The calculation relies on the principle that the forward rate must offset the interest rate differences to prevent risk-free arbitrage opportunities. The standard formula is:
F = S × [ (1 + i_q × T/B) / (1 + i_b × T/B) ]
Where:
- F: The Forward Rate.
- S: The Current Spot Rate.
- i_q: Interest rate of the Quote Currency (Domestic).
- i_b: Interest rate of the Base Currency (Foreign).
- T: Time to maturity in days.
- B: Day count basis (usually 360 or 365).
Why Do Forward Rates Differ from Spot Rates?
Forward rates are not predictions of where the market will go; they are purely mathematical derivations. If the interest rate of the Quote currency is higher than the Base currency, the forward rate will be higher than the spot rate (trading at a premium). Conversely, if the Quote currency has a lower interest rate, the forward rate will be lower (trading at a discount).
Example Calculation
Let's assume you are looking at the EUR/USD pair:
- Spot Rate (S): 1.1000
- USD Rate (Quote, i_q): 5.00%
- EUR Rate (Base, i_b): 3.00%
- Days (T): 90
- Basis (B): 360
Using the formula, the USD interest component is roughly 1.25% (unannualized) and EUR is 0.75%. Since the quote currency interest (USD) is higher, the forward rate will adjust upwards to compensate the holder of the lower-yielding currency (EUR) in the forward contract.
Key Inputs Defined
Quote Currency Interest Rate: The interest rate of the second currency in the pair (e.g., USD in EUR/USD). This is often the domestic rate if you are pricing from a local perspective.
Base Currency Interest Rate: The interest rate of the first currency in the pair (e.g., EUR in EUR/USD).
Day Count Convention: Money markets use different conventions. Most major currencies (USD, EUR, CHF) use a 360-day year. However, GBP and some Commonwealth currencies typically use a 365-day year.
function calculateForwardRate() {
// 1. Get Input Values
var s = document.getElementById('spotRate').value;
var rQuote = document.getElementById('quoteRate').value;
var rBase = document.getElementById('baseRate').value;
var t = document.getElementById('days').value;
var b = document.getElementById('basis').value;
// 2. Validate Inputs
if (s === "" || rQuote === "" || rBase === "" || t === "") {
alert("Please fill in all fields to calculate the Forward Rate.");
return;
}
var spot = parseFloat(s);
var rateQuote = parseFloat(rQuote);
var rateBase = parseFloat(rBase);
var days = parseFloat(t);
var basis = parseFloat(b);
if (spot <= 0 || days <= 0 || basis 0) pointsStr = "+" + pointsStr;
document.getElementById('resPoints').innerText = pointsStr;
document.getElementById('resSpread').innerText = spreadPercent.toFixed(4) + "%";
}