FX Forward Rate & Hedge Cost Calculator

About the FX Forward Rate & Hedge Cost Calculator

A currency forward fixes today the rate for an exchange on a later date. Its rate is not a guess about where the currency will be: it follows from spot and the interest rates of the two currencies over the period (covered interest parity). The currency with the higher interest rate trades at a forward discount, the one with the lower rate at a premium.

Type the pair, the spot rate, the days to the forward date and the two interest rates with their day counts, and the calculator works out the forward rate, the forward points (in pips, or paise for the rupee), the annualised premium or discount, and for an amount you will pay or receive, what the forward costs or gives against today’s spot and how it compares with no hedge for spot moves of up to 5% either way. Or type the forward points your bank quotes to see the rate difference they imply.

It works for any pair; spot can be typed or filled from the European Central Bank’s reference rates when you ask.

Common uses

• Work out the rate an importer can fix for a payment due in three months.
• Check a bank’s forward quote against the interest-rate difference.
• See what hedging an export receivable costs or gives compared with today’s rate.
• Turn quoted forward points into an annual percentage.

The formulas

• Forward rate F = S × (1 + r quote × d ÷ B quote) ÷ (1 + r base × d ÷ B base), with money-market interest.
• Continuous variant: F = S × e^{(r quote − r base) × d ÷ 365}.
• Forward points = (F − S) × 10,000 for most pairs, × 100 for yen pips and for rupee paise.
• Annualised premium = (F ÷ S − 1) × 365 ÷ d.
• From quoted points: F = S + points ÷ 10,000 (or ÷ 100), and the quote rate they imply is ((F ÷ S) × (1 + r base × d ÷ B base) − 1) × B quote ÷ d.

S is spot (quote per base), d the days, B each rate’s day-count basis. This is the forward price of a currency in Hull, Options, Futures, and Other Derivatives, chapter 5. The day counts: the US dollar’s and the Swiss franc’s overnight benchmarks are quoted on ACT/360 (SOFR at the New York Fed, SARON at SIX); for other currencies use the day count of the rate you are quoted.

Reading the results

• Forward points are what a bank adds to (or takes from) spot for the forward date.
• A year puts the premium or discount on a yearly scale, close to the interest-rate difference of the two currencies.
• Against today’s spot is what fixing the rate now costs or gives compared with exchanging at today’s spot; the comparison that matters at the date is with the spot rate then, shown in the table.
• The table’s spot moves are what-ifs: they show what the forward does whatever happens to the rate, not where the rate will be.

What it leaves out

Your bank’s margin on the forward rate and its fees, the bid–ask spread, credit lines and collateral, the exact settlement date’s day count, and that market forward rates can differ a little from the parity rate worked out here. Check your bank’s quote before you deal.

Limitations

• One interest rate per currency for the whole period.
• The tenor buttons fill approximate days; use the exact days to your settlement date.
• Spot from the ECB is a reference rate published for information, not a rate you can deal at.
• It calculates from your numbers and uses no market data: it says nothing about where any rate is going.

Privacy

Everything happens in your browser. What you enter or open here is not uploaded or stored by MySmartCoPilot. Downloads the ECB’s daily reference exchange rates when you ask for them; the amounts you enter are never sent.