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Interest Rate Parity Calculator

Work out interest rate parity instantly with clear inputs, formula shown and shareable results.

About Interest Rate Parity Calculator

Covered interest rate parity says a forward exchange rate must offset the interest differential, otherwise borrowing in the cheap currency and lending in the dear one would be a riskless profit. The currency with the higher rate trades at a forward discount.

Formula

Covered parity

F = S × (1 + r_d·t) / (1 + r_f·t)

S
Spot rate
r_d
Domestic rate
r_f
Foreign rate
t
Years

Worked example

With the default values below, Interest Rate Parity Calculator returns No-Arbitrage Forward Rate of 85.4976. Change any input above and every figure here is recalculated in your browser.

Inputs used

Spot Exchange Rateaccepts 0–100,000
83.5
Domestic Interest Rateaccepts 0–100 %
7 %
Foreign Interest Rateaccepts 0–100 %
4.5 %
Tenor In Monthsaccepts 1–120
12

Results

No-Arbitrage Forward Rate
85.4976
Forward Premium Over Tenor
2.3923%
Annualised Forward Premium
2.3923%
Forward Points
199.76

Step by step

  1. 1Values used
  2. 2Covered parity
  3. 3No-Arbitrage Forward Rate= 85.4976
  4. 4Forward Premium Over Tenor= 2.3923
  5. 5Annualised Forward Premium= 2.3923
  6. 6Forward Points= 199.76

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation, tax, fees or charges or compounding frequency into account.
  • Figures are rounded for display to 4 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

Why does the high-rate currency trade weaker forward?

Its extra interest has to be given back somewhere, and the forward price is where the market takes it.

Does parity always hold?

Covered parity holds closely in liquid markets. Uncovered parity, which predicts spot moves, does not hold reliably.

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