Currency Forward Calculator
Calculate forward exchange rates using interest rate parity for hedging and speculation
Forward Contract Parameters
Current exchange rate (e.g., 1.2500 for EUR/USD)
Number of days until contract maturity
Risk-free rate for quote currency (e.g., USD in EUR/USD)
Risk-free rate for base currency (e.g., EUR in EUR/USD)
Convention for calculating interest rates (360 is standard for FX)
Forward Contract Results
Calculation Details
Formula: F = S × (1 + r₁) / (1 + r₂)
Price Currency Rate: 0.6250% (90 days)
Base Currency Rate: 1.2500% (90 days)
Forward Points: -77.2 pips
Market Analysis
Interest Rate Differential: -2.50%
Arbitrage Opportunity: Sell Forward
Contract Type: Currency depreciating
Risk Assessment: Normal volatility
Risk & Strategy Analysis
Example Calculation
GBP/MYR Forward Contract
Spot Rate: 0.1735 (GBP/MYR)
Contract Period: 90 days
GBP Interest Rate: 0.8% (Price Currency)
MYR Interest Rate: 3.2% (Base Currency)
Step-by-Step Calculation
1. Price currency rate (90 days): 0.8% × (90/360) = 0.2%
2. Base currency rate (90 days): 3.2% × (90/360) = 0.8%
3. Forward rate: 0.1735 × (1.002/1.008) = 0.1725
Result: Forward rate = 0.1725 GBP/MYR
Forward Contract Applications
Hedging
Protect against adverse currency movements
Lock in exchange rates for future transactions
Speculation
Profit from expected currency movements
Take positions based on market outlook
Arbitrage
Exploit pricing inefficiencies
Risk-free profit from market mispricing
Forward Contract Facts
No upfront payment required to enter contract
Customizable terms unlike standardized futures
Based on interest rate parity theory
Settlement occurs at contract maturity
Counter-party risk exists (unlike futures)
Understanding Currency Forward Contracts
What is a Currency Forward?
A currency forward contract is an agreement to buy or sell a specific amount of foreign currency at a predetermined exchange rate on a future date. Unlike spot transactions, forwards allow parties to lock in exchange rates for future delivery.
Interest Rate Parity Theory
- •Forward rates are determined by interest rate differentials
- •Higher interest rate currencies trade at forward discount
- •Lower interest rate currencies trade at forward premium
- •Prevents risk-free arbitrage opportunities
Forward Rate Formula
F = S × (1 + r₁ × t) / (1 + r₂ × t)
- F: Forward exchange rate
- S: Current spot exchange rate
- r₁: Price currency interest rate
- r₂: Base currency interest rate
- t: Time to maturity (days/360 or days/365)
Note: Forward points = (Forward Rate - Spot Rate) × 10,000 pips