How this calculation works
A theoretical FX forward links a spot exchange ratio with the relative accumulation of the two currencies. Quote orientation matters: reversing which currency is domestic reverses the relationship between rates and the quoted forward. This page uses simple interest with one entered day basis for both currencies. It evaluates covered-interest arithmetic rather than forecasting the future spot rate.
Forward = spot × (1+domestic rate × t)/(1+foreign rate × t)A worked example
With spot eighty domestic units per foreign unit, domestic simple rate six percent, foreign rate three percent and a 365-day tenor on a 365 basis, forward is eighty times 1.06 divided by 1.03. That gives about 82.33010 in the same quote orientation. If the two rates are equal, their accumulation factors cancel and the theoretical forward equals spot.
Good to know
No bid-ask spread, cross-currency basis, collateral convention or credit adjustment is included. Real forward quotes can also use different day bases and market settlement rules. The entered rates are not looked up or verified. This is an educational scenario and not a tradable quote, borrowing offer or recommendation to enter a foreign-exchange contract.
Reference: CFA Institute — currency forward valuation (opens in a new tab) ↗
What this calculation answers
A theoretical FX forward links a spot exchange ratio with the relative accumulation of the two currencies. Quote orientation matters: reversing which currency is domestic reverses the relationship between rates and the quoted forward.
This page uses simple interest with one entered day basis for both currencies. It evaluates covered-interest arithmetic rather than forecasting the future spot rate.
The European Black Scholes option price and Greeks calculator values a nonlinear European payoff. A covered-interest forward instead follows a linear quote relationship under entered funding conventions.
Use the right input conventions
Spot is domestic currency units per one foreign unit. Both interest inputs are annual percentages using the same simple convention. Tenor is converted into a year fraction using the selected 360 or 365 denominator.
Each accumulation factor must remain positive. The day count is an entered calendar tenor, not a holiday-adjusted settlement schedule, and both currencies use the same selected basis in this simplified model.
Interpret the result
Forward points here are the raw difference between forward and spot in the quoted rate units. They are not scaled pips because pip conventions differ across currency pairs and market systems.
A premium relative to spot does not establish a profitable currency view. The calculation concerns funding-rate consistency under assumptions, not a prediction of which currency will strengthen.
Work through the example
With spot eighty domestic units per foreign unit, domestic simple rate six percent, foreign rate three percent and a 365-day tenor on a 365 basis, forward is eighty times 1.06 divided by 1.03.
That gives about 82.33010 in the same quote orientation. If the two rates are equal, their accumulation factors cancel and the theoretical forward equals spot.
Where the model stops
No bid-ask spread, cross-currency basis, collateral convention or credit adjustment is included. Real forward quotes can also use different day bases and market settlement rules.
The entered rates are not looked up or verified. This is an educational scenario and not a tradable quote, borrowing offer or recommendation to enter a foreign-exchange contract.
A few questions, answered
Does this predict the spot rate at maturity?
No. It calculates a funding-parity scenario under the entered rate and quote conventions.
What changes in the comparison?
Equalize domestic and foreign rates and inspect the zero forward-points limit.