How to Calculate the Spot Exchange Rate

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Spot Exchange Rate Calculator

Calculated Spot Exchange Rate:

Understanding the Spot Exchange Rate

The spot exchange rate is the current market price for which one currency can be exchanged for another for immediate delivery. Unlike forward rates, which are agreed upon today for a transaction in the future, the spot rate represents the "right now" value in the foreign exchange (Forex) market.

The Formula: Interest Rate Parity (IRP)

While the spot rate is usually quoted directly by banks, it can be derived from the forward rate and the interest rate differential between two countries using the following calculation:

Spot = Forward / [(1 + (r_quote × t / 360)) / (1 + (r_base × t / 360))]

Where:

  • Forward: The future exchange rate quoted today.
  • r_base: Annual interest rate of the base currency.
  • r_quote: Annual interest rate of the quote currency.
  • t: Time in days until the forward contract expires.

How to Interpret the Result

In a standard pair like EUR/USD, EUR is the Base and USD is the Quote. If the interest rate in the US is higher than in Europe, the forward rate will typically be higher than the spot rate (trading at a premium). Conversely, if the base currency has a higher interest rate, it will trade at a forward discount.

Example Calculation

Suppose you have a 90-day forward rate for GBP/USD at 1.3000. If the UK (Base) interest rate is 5% and the US (Quote) interest rate is 3%:

  1. Calculate the Quote factor: 1 + (0.03 * 90 / 360) = 1.0075
  2. Calculate the Base factor: 1 + (0.05 * 90 / 360) = 1.0125
  3. Divide Quote by Base: 1.0075 / 1.0125 = 0.99506
  4. Spot = 1.3000 / 0.99506 = 1.3064

This tells you that the current spot rate is 1.3064, and the currency is trading at a forward discount because of the higher yield in the UK.

function calculateSpotRate() { var forward = parseFloat(document.getElementById('forwardRate').value); var days = parseFloat(document.getElementById('timePeriod').value); var rBase = parseFloat(document.getElementById('baseRate').value) / 100; var rQuote = parseFloat(document.getElementById('quoteRate').value) / 100; var resultDiv = document.getElementById('spotResult'); var valSpan = document.getElementById('spotValue'); var logicText = document.getElementById('logicBreakdown'); if (isNaN(forward) || isNaN(days) || isNaN(rBase) || isNaN(rQuote) || forward <= 0 || days spot) { relationship = "The currency is trading at a forward premium."; } else if (forward < spot) { relationship = "The currency is trading at a forward discount."; } else { relationship = "The spot and forward rates are at parity."; } logicText.innerText = "Based on a " + days + "-day period and an interest differential of " + ((rQuote – rBase) * 100).toFixed(2) + "%. " + relationship; resultDiv.style.display = "block"; resultDiv.scrollIntoView({ behavior: 'smooth', block: 'nearest' }); }

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