Interest Rate Parity Calculator

Interest Rate Parity (IRP) Calculator		Notes
Spot Rate, S		Spot exchange rate
Base Currency Annual Interest Rate (%)		Use annual interest rate in home country, such as 5(%); *id = annual rate (Days of Forward Contract / 360)**
Quoted Currency Annual Interest Rate (%)		Use annual interest rate in foreign country, such as 5(%);*if = annual rate (Days of Forward Contract / 360)**
Days till Maturity of the Forward Contract		Could be 90 days, 180 days, 270 days, or 360 days, etc. Use a 360-day year to calculate the partial interest rate. For example, 90 days is 1/4 of a year
Forward Rate, F	--	Forward exchange rate based on Interest Rate Parity
Forward Premium / Discount	--	Forward premium or discount

Notes:

The formula to determine the forward foreign exchange rate is the following:

F = S * ((1 + i_q) / (1 + ib)

A simpler version: F = S*(i_q- ib)

Where:

i_b is the interest rate in the base currency (for partial interest rate, use ((days to maturity / 360) * annual interest rate) to get i_d )
i_q is the interest rate in the quoted currency (for partial interest rate, use ((days to maturity / 360) * annual interest rate) to get if )
S is the current spot foreign exchange rate.
F is the forward foreign exchange rate.

Forward Premium = F/S -1 = (F-S)/S

Examples: USD/GBP, the US Dollar is the base currency; EUR/USD, the EURO is the base currency

GBP/USD = 2, interest rate in UK is 10%, interest rate is US is 5% ==> F = 2*(1+5%) / (1+10%) = 1.9091

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