Fx Forward Rate Calculator

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FX Forward Rate Calculator

Use this calculator to determine the forward exchange rate for a future transaction.

Result:

Understanding FX Forward Rates

An FX forward rate is the exchange rate agreed upon today for the exchange of two currencies at a future date. It's a crucial tool for businesses and investors looking to hedge against currency fluctuations. The forward rate is not a prediction of the future spot rate; rather, it's derived from the current spot rate and the interest rate differentials between the two currencies involved.

The core principle behind calculating the forward rate is the Interest Rate Parity (IRP) theory. This theory suggests that the difference in interest rates between two countries should be equal to the difference between the forward and spot exchange rates. Essentially, it implies that an investor would earn the same return investing in domestic or foreign markets if they hedged their currency risk using forward contracts.

The formula used to calculate the forward rate is as follows:

Forward Rate = Spot Rate * [ (1 + (Domestic Interest Rate * Days to Maturity / 360)) / (1 + (Foreign Interest Rate * Days to Maturity / 360)) ]

In this formula:

  • Spot Rate: The current market exchange rate for immediate delivery.
  • Domestic Interest Rate: The annualized interest rate of the base currency (the currency being bought or sold, typically the first currency in a pair).
  • Foreign Interest Rate: The annualized interest rate of the quote currency (the second currency in a pair).
  • Days to Maturity: The number of days until the forward contract expires. We typically use a 360-day year for FX calculations, although this can sometimes vary.

For example, if the spot rate for EUR/USD is 1.1000, the domestic (EUR) interest rate is 2% per annum, the foreign (USD) interest rate is 4% per annum, and the maturity is 180 days, the forward rate would be calculated as:

Forward Rate = 1.1000 * [ (1 + (0.02 * 180 / 360)) / (1 + (0.04 * 180 / 360)) ]

Forward Rate = 1.1000 * [ (1 + 0.01) / (1 + 0.02) ]

Forward Rate = 1.1000 * (1.01 / 1.02)

Forward Rate ≈ 1.0882

This means that to hedge against the interest rate differential, the forward rate for EUR/USD in 180 days would be approximately 1.0882. This difference accounts for the higher interest earned on USD compared to EUR.

function calculateForwardRate() { var spotRate = parseFloat(document.getElementById("spotRate").value); var domesticInterestRate = parseFloat(document.getElementById("domesticInterestRate").value); var foreignInterestRate = parseFloat(document.getElementById("foreignInterestRate").value); var daysToMaturity = parseFloat(document.getElementById("daysToMaturity").value); var resultDiv = document.getElementById("forwardRateResult"); resultDiv.innerHTML = ""; // Clear previous results if (isNaN(spotRate) || isNaN(domesticInterestRate) || isNaN(foreignInterestRate) || isNaN(daysToMaturity)) { resultDiv.innerHTML = "Please enter valid numbers for all fields."; return; } if (spotRate <= 0 || daysToMaturity <= 0) { resultDiv.innerHTML = "Spot rate and days to maturity must be positive."; return; } // Convert annual interest rates from percentage to decimal var domesticRateDecimal = domesticInterestRate / 100; var foreignRateDecimal = foreignInterestRate / 100; // Use 360 for the number of days in a year for FX calculations var yearDays = 360; var domesticFactor = 1 + (domesticRateDecimal * (daysToMaturity / yearDays)); var foreignFactor = 1 + (foreignRateDecimal * (daysToMaturity / yearDays)); var forwardRate = spotRate * (domesticFactor / foreignFactor); // Format the result to be displayed with the same number of decimal places as the spot rate var decimalPlaces = (spotRate.toString().split('.')[1] || '').length; var formattedForwardRate = forwardRate.toFixed(decimalPlaces); resultDiv.innerHTML = "The forward exchange rate is: " + formattedForwardRate + ""; } .fx-forward-calculator { font-family: sans-serif; border: 1px solid #ddd; padding: 20px; border-radius: 8px; max-width: 800px; margin: 20px auto; background-color: #f9f9f9; } .fx-forward-calculator h2, .fx-forward-calculator h3 { color: #333; margin-bottom: 15px; } .fx-forward-calculator p { color: #555; line-height: 1.6; margin-bottom: 15px; } .fx-forward-calculator code { background-color: #e9e9e9; padding: 2px 6px; border-radius: 4px; font-family: monospace; } .calculator-inputs { display: grid; grid-template-columns: 1fr 1fr; gap: 15px; margin-bottom: 25px; padding: 15px; border: 1px solid #eee; border-radius: 5px; background-color: #fff; } .calculator-inputs h2 { grid-column: 1 / -1; text-align: center; } .input-group { display: flex; flex-direction: column; } .input-group label { margin-bottom: 5px; font-weight: bold; color: #444; } .input-group input[type="number"] { padding: 10px; border: 1px solid #ccc; border-radius: 4px; font-size: 1em; } .calculator-inputs button { grid-column: 1 / -1; padding: 12px 20px; background-color: #007bff; color: white; border: none; border-radius: 5px; cursor: pointer; font-size: 1.1em; transition: background-color 0.3s ease; } .calculator-inputs button:hover { background-color: #0056b3; } .calculator-result { margin-top: 20px; padding: 15px; border: 1px solid #e0e0e0; border-radius: 5px; background-color: #fff; text-align: center; } #forwardRateResult { font-size: 1.5em; color: #007bff; font-weight: bold; margin-top: 10px; } .calculator-explanation { margin-top: 30px; padding-top: 20px; border-top: 1px solid #eee; } .calculator-explanation ul { margin-left: 20px; list-style: disc; } .calculator-explanation li { margin-bottom: 10px; }

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