Forward Exchange Rate Calculator
Reviewed by Hamza Gujjar, Algorithm Architect & Software Developer
Last updated: July 27, 2026Forward Exchange Rate Calculator
Covered Interest Rate Parity (CIRP) is a no-arbitrage condition that determines what a currency's forward exchange rate "should" be, given the spot rate and each currency's interest rate. If the actual forward rate quoted by a bank deviates from this theoretical rate, in principle a riskless arbitrage profit exists.
Formula
Forward Rate = Spot Rate x [(1 + Quote Rate x Time) / (1 + Base Rate x Time)]
Step-by-Step Example
- Spot rate: 1.10
- Quote currency interest rate: 5%, Base currency rate: 2%, Time: 1 year
- Forward Rate = 1.10 x [(1 + 0.05) / (1 + 0.02)] = 1.13235
- Forward points = (1.13235 - 1.10) x 10,000 = 323.5 points
Why This Matters
The currency with the higher interest rate will typically trade at a forward discount against the lower-interest-rate currency, and vice versa - this is exactly what prevents traders from borrowing cheaply in one currency, converting to the higher-yielding currency, and locking in a risk-free forward contract for guaranteed profit. Banks and corporate treasuries use this relationship daily to price forward contracts used for hedging future foreign currency cash flows.