Forward Premium Calculator

Find the forward exchange rate using covered interest rate parity, then see the forward points and forward premium or discount — both as a straight percentage and annualized for comparison across maturities.

These are just labels for your results — e.g. EUR/USD means 1 EUR priced in USD. They don't affect the math.

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Short-dated money-market or deposit rates for each currency, matched to your hedge horizon, are the usual inputs.

Most currencies use 360; GBP and related Commonwealth currencies (AUD, NZD, HKD) typically use 365.

Enter the spot rate, both interest rates, and days to maturity, then select Calculate to see the forward rate, forward points, and premium/discount.

Your inputs are processed entirely in your browser and are restored automatically if you reload this page. Nothing is sent to a server. This is a no-arbitrage calculation, not a forecast of future exchange rates.

What this calculator finds

This calculator answers two related questions: what should the forward exchange rate for a currency pair be, given today's spot rate and each currency's interest rate — and, once you have that forward rate, is the base currency trading at a premium or a discount to spot, and by how much? Both come from the same underlying relationship, covered interest rate parity (CIP), a no-arbitrage condition rather than a prediction. It doesn't forecast where the spot rate will actually move by the delivery date; it describes the forward rate consistent with today's interest rates, such that borrowing, converting, investing abroad, and locking in a forward contract to convert back produces no risk-free profit over simply investing at home.

Required inputs

Four numbers drive the calculation: the spot exchange rate, quoted as how much of the quote currency it takes to buy one unit of the base currency (EUR/USD = 1.08 means 1 EUR = 1.08 USD, so EUR is the base currency and USD is the quote currency); the base currency's interest rate and the quote currency's interest rate, both annualized; and the number of days to maturity — the hedge horizon or time to delivery on the forward contract. A day-count basis (360 or 365, more below) converts that day count into a fraction of a year for the formula.

The forward rate formula (covered interest rate parity)

The no-arbitrage forward rate is:

F = S × (1 + rquote × T) / (1 + rbase × T), where T = days / basis

S is the spot rate, rbase and rquote are the two currencies' interest rates as decimals, and T is time to maturity in years. The base currency's own rate sits in the denominator — a lower base-currency rate, relative to the quote currency, pushes the forward rate above spot. This is the outright forward rate itself, not a percentage; forward points and the premium/discount percentage (below) describe how it relates to spot.

Premium vs. discount: the decision rule

Once you have a forward rate, comparing it to spot tells you which way the currency is leaning: if F > S, the base currency is at a forward premium — it's worth more in the forward market than today; if F < S, it's at a forward discount — worth less forward than today. This isn't arbitrary: it reflects the interest rate differential directly. Under covered interest rate parity, the currency with the lower interest rate trades at a forward premium, and the currency with the higher interest rate trades at a forward discount. Intuitively, the currency you can borrow more cheaply has to be worth more in the future (in the other currency's terms) for the no-arbitrage condition to hold — otherwise you could borrow the cheap currency, convert it, invest at the higher foreign rate, and lock in a forward contract to convert back for a riskless profit.

Forward points and outright rates

Forward points are simply F − S, the absolute difference between the forward and spot rates. In the market, forward points are usually quoted in pips rather than as a raw decimal — for most currency pairs, one pip is 0.0001 of the exchange rate (so forward points are multiplied by 10,000), while pairs involving the Japanese yen conventionally quote to two decimal places, making one pip 0.01 (multiply by 100 instead). To get back to an actual tradeable rate — the outright forward rate — you add positive forward points (a premium) to the spot rate, or subtract the absolute value of negative forward points (a discount). In practice this is just F itself; forward points are how the market quotes the same information as a smaller, easier-to-communicate number layered on top of a spot rate everyone already knows.

Annualizing the premium, and why day-count conventions matter

A 0.75% premium on a 90-day contract and a 0.75% premium on a 30-day contract represent very different rates of return, so comparing forward premiums across different maturities requires annualizing: Annualized % = [(F − S) / S] × (basis / days) × 100. The basis — 360 or 365 — is the assumed number of days in a year for this calculation, and it isn't universal: most major currencies (USD, EUR, CHF, and others) use a 360-day money-market convention, while GBP and several historically related Commonwealth currencies (AUD, NZD, HKD) use 365. This is a genuinely common source of confusion — two calculators fed the identical spot rate, rates, and day count can report slightly different annualized premiums simply because one assumed 360 and the other 365, without either being wrong.

Worked example

Take a EUR/USD-style pair: spot rate 1.0800, EUR (base) interest rate 2.0%, USD (quote) interest rate 5.0%, 90 days to maturity, 360-day basis.

Step 1 — Forward rate via CIP: F = 1.0800 × (1 + 0.05 × 90/360) / (1 + 0.02 × 90/360) = 1.0800 × 1.0125 / 1.0050 ≈ 1.0881.

Step 2 — Forward points: 1.0881 − 1.0800 = 0.0081, or about 81 pips.

Step 3 — Premium/discount: (1.0881 − 1.0800) / 1.0800 × 100 ≈ 0.75%. Since F > S, the euro is at a forward premium — consistent with the euro carrying the lower interest rate in this example.

Step 4 — Annualized: 0.75% × (360/90) = 2.99% annualized premium.

Try these same numbers in the calculator above to confirm the results, then adjust the rates or maturity to see how the forward rate and premium respond.

Why this matters: hedging, cost of carry, and market quotes

Corporates and banks use this calculation constantly for very practical reasons. A company expecting a foreign-currency payment in 90 days can lock in today's implied forward rate rather than face unknown spot-rate risk at settlement — understanding the forward premium or discount tells them whether that hedge will cost them relative to today's spot rate, or actually work in their favor. Forward rates and points are also simply how the market quotes forward FX contracts day to day, so being able to translate between an outright forward rate and the points/percentage terms dealers use is a basic literacy question for anyone reading a quote sheet. The underlying relationship is sometimes called the cost of carry in this context — the net cost (or benefit) of holding one currency versus the other over the life of the contract, driven by the interest rate differential.

Related concepts worth knowing

This calculator focuses specifically on the spot-to-forward relationship for a single currency pair, but a few related instruments build on the same logic. An FX swap combines a spot transaction with an offsetting forward transaction in the same pair, effectively using the forward premium/discount calculated here to price the swap's near and far legs. A forward rate agreement (FRA) applies a similar no-arbitrage, interest-rate-differential logic to lock in a future interest rate rather than a future exchange rate. Both are natural next steps if you want to go deeper than the core premium/discount calculation this page focuses on.

What the calculator outputs, and a note on interpretation

Running the calculator above produces four numbers: the forward rate itself, forward points (in both raw decimal and pips), the premium/discount percentage for the actual contract length you entered, and the annualized version of that percentage. All of these describe the base currency — the one you entered first, and the one the spot rate is quoted "per unit of." A premium means the base currency is stronger forward than spot; a discount means the opposite. This convention (base currency premium/discount, spot as quote-per-base) is the standard retail FX framing, but it's worth double-checking which side of a quote you're looking at whenever you compare results against a different source, since some institutional or academic materials use the reverse subscript convention.

Assumptions and limitations

Covered interest rate parity is a theoretical no-arbitrage relationship, and real market forward rates can deviate from it slightly due to transaction costs, bid-ask spreads, counterparty credit risk, and temporary liquidity effects — deviations from CIP do occasionally appear and are watched closely by FX and money-market desks. This calculator also assumes simple (not compounded) interest over the period, consistent with standard money-market forward-rate conventions; it doesn't account for settlement-date conventions, holidays, or the specific quoting practices of any individual bank. Treat its output as a well-grounded estimate of the no-arbitrage forward rate and premium, not a live, executable market quote.

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Frequently asked questions

What is the formula for calculating forward premium?

Forward premium % = (Forward rate − Spot rate) / Spot rate × 100. To annualize it, multiply by the day-count basis (360 or 365) divided by days to maturity.

How do you calculate forward premium or discount?

Compare the forward rate to the spot rate. A forward rate above spot means the base currency is at a forward premium; below spot means a forward discount. The percentage difference, divided by spot, gives the size of that premium or discount.

What is the difference between forward premium and forward discount?

A premium means the base currency is worth more forward than spot (F > S); a discount means it's worth less (F < S). Under covered interest rate parity, the lower-interest-rate currency trades at a premium and the higher-rate currency trades at a discount.

How do you calculate the forward exchange rate?

Forward rate = Spot rate × (1 + quote currency rate × T) / (1 + base currency rate × T), where T is time to maturity in years. This comes from covered interest rate parity, a no-arbitrage relationship, not a forecast.

What is covered interest rate parity and how does it relate to forward rates?

Covered interest rate parity is the no-arbitrage condition requiring the forward rate to exactly offset the interest rate differential between two currencies, so no riskless profit is possible from borrowing in one, converting, investing in the other, and hedging back with a forward contract. The forward rate formula is derived directly from this condition.

How do you annualize a forward premium or discount?

Annualized % = [(Forward − Spot) / Spot] × (basis / days) × 100, using a 360- or 365-day basis. This lets you compare premiums from contracts of different lengths on the same footing.

What are forward points and how are they calculated?

Forward points are Forward rate − Spot rate, usually quoted in pips (0.0001 of the rate for most pairs, 0.01 for yen pairs). Add them to spot (if positive) or subtract them (if negative) to get the outright forward rate.

When does a currency trade at a forward premium vs discount?

A currency is at a forward premium when its interest rate is lower than the other currency's in the pair, and at a forward discount when its rate is higher — this follows directly from covered interest rate parity.

How do interest rate differences affect forward rates?

A larger interest rate gap between the two currencies produces a larger forward premium or discount, in the direction that offsets the advantage of holding the higher-rate currency, keeping the no-arbitrage relationship intact.

What inputs do I need to calculate a forward premium?

The spot rate, the base currency's interest rate, the quote currency's interest rate, and days to maturity, plus the day-count basis (360 or 365).

How is the forward premium formula different from the forward rate formula?

The forward rate formula produces an actual rate from spot and the two interest rates. The forward premium formula takes that forward rate and expresses how far it differs from spot, as a percentage — one produces a rate, the other describes the relationship between two rates.

Can you show a worked example of forward premium calculation?

Spot 1.0800, base rate 2%, quote rate 5%, 90 days, 360-day basis: forward rate ≈ 1.0881, forward points ≈ 81 pips, premium ≈ 0.75%, annualized ≈ 2.99%. The base currency is at a premium because it carries the lower interest rate.

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