Forward Premium Calculator
Calculate forward premium and annualized forward premium for currency exchange rates
Forward Premium Calculator
Select the currency pair for the forward contract
Current exchange rate in the market
Agreed exchange rate in the forward contract
Number of days until contract maturity
Forward Premium Results
Calculation Formulas
Market Interpretation
Example Calculations
GBP/EUR Forward Premium Example
Currency Pair: GBP/EUR
Spot Rate: 1.1859
Forward Rate: 1.1885
Contract Duration: 90 days
Forward Premium: (1.1885 - 1.1859) / 1.1859 × 100 = 0.22%
Annualized Premium: 0.22% × (360/90) = 0.88%
Interpretation: GBP is expected to strengthen against EUR
180-Day Forward Example
Forward Premium: 5%
Contract Duration: 180 days
Annualized Premium: 5% × (360/180) = 10%
Daily Premium: 5% / 180 = 0.0278% per day
Forward Premium vs Discount
Forward Premium
Forward rate > Spot rate. Market expects currency to strengthen.
Positive percentage value
Forward Discount
Forward rate < Spot rate. Market expects currency to weaken.
Negative percentage value
Key Terms
Spot Rate
Current exchange rate for immediate delivery
Forward Rate
Agreed exchange rate for future delivery
Currency Forward
Contract to exchange currencies at future date
Hedging
Risk management strategy for currency exposure
Common Contract Periods
Understanding Forward Premium
What is Forward Premium?
Forward premium is the difference between the forward exchange rate and the spot exchange rate, expressed as a percentage. It indicates market expectations about future currency movements and reflects interest rate differentials between countries.
Why is it Important?
- •Indicates market sentiment about currency direction
- •Helps in currency hedging decisions
- •Reflects interest rate differentials
- •Guides international investment strategies
Formula Explanation
Forward Premium = (Forward Rate - Spot Rate) / Spot Rate × 100
Annualized Premium = Forward Premium × (360 / Days)
Applications
Hedging
Companies use forward contracts to hedge against currency risk in international transactions.
Speculation
Traders use forward premiums to speculate on future currency movements.
Arbitrage
Investors identify arbitrage opportunities through forward premium analysis.