A 2008 plot twist
CIP held for decades—until the 2008 crisis. Dollar funding stress created a “basis” that made forwards diverge from theory.
CIP gap
Interest Rate Parity Calculator: Forward Exchange Rate from Spot and Interest Rates
Method
Tip Use Covered to price a forward from spot + interest rates. Use Implied to back out a rate from spot & a market forward. UIP provides a simple expected spot from rate differentials (theory, not a forecast).
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Forward Exchange Rate from Spot and Interest Rates
Let S be the spot rate, rd domestic, rf foreign, and T years.
With growth factors Gd, Gf from your compounding choice:
F = S × (Gd / Gf)
Currency convention
The currency after "per 1".
The currency used to price one base unit.
You are entering USD per 1 EUR; USD is domestic/quote currency and EUR is foreign/base currency.
Use the quote shown in the preview.
Or leave blank and use years.
Advanced settings
We’ll report CIP deviation vs. model.
We’ll convert using the model forward.
Shown before domestic converted amounts.
Shown beside foreign amounts.
Affects formatted outputs, not internal precision.
Quote convention
The visible pair is always quote currency per 1 base currency. Use the invert button to flip the spot and forward quote.
Implied Rate — From Spot & Forward
Given S, F, tenor T, and one rate (rd or rf) with compounding, solve the other from
F / S = Gd / Gf.
Enter rd if solving rf, or rf if solving rd.
Uncovered IRP — Expected Spot
A simple UIP view uses the same growth ratio for an expected future spot:
E[ST] ≈ S × (Gd / Gf)
Results
Notes: Match your compounding and day-count to quoted rates. CIP is a pricing identity under no-arbitrage assumptions; UIP is an economic hypothesis (not a forecast).
Worked Example: 6-Month EUR/USD Forward Rate
Inputs: spot S = 1.1000 USD per 1 EUR, domestic USD rate rd = 5.00% p.a., foreign EUR rate rf = 3.00% p.a., tenor T = 0.5 years, simple compounding.
Growth factors: Gd = 1 + 0.0500 x 0.5 = 1.0250; Gf = 1 + 0.0300 x 0.5 = 1.0150.
Substitution: F = 1.1000 x (1.0250 / 1.0150) = 1.110837 USD per 1 EUR.
Interpretation: the forward points are 1.110837 - 1.1000 = 0.010837. In a USD-per-EUR quote, EUR trades at a forward premium because the USD interest rate is higher than the EUR interest rate, so covered interest parity raises the USD price of one future euro.
Interest Rate Parity Formulas
Covered interest parity (CIP): F = S x (Gd / Gf). This is the forward exchange rate formula used by the covered interest parity calculator.
Uncovered interest parity (UIP): E[ST] approximately equals S x (Gd / Gf). UIP uses the interest rate differential as a theoretical expected spot rate, without a forward contract.
Implied-rate rearrangements: Gd = (F / S) x Gf; Gf = Gd / (F / S). Convert the solved growth factor back into an annual rate with the selected compounding convention.
| Variable | Meaning |
|---|---|
| S | Spot rate in one consistent quote convention, such as USD per 1 EUR. |
| F | Forward rate for the same currency pair and tenor. |
| rd | Domestic interest rate for the quote currency in a domestic-per-foreign quote. |
| rf | Foreign interest rate for the base currency in a domestic-per-foreign quote. |
| T | Tenor in years. Days are converted with ACT/360 or ACT/365. |
| Gd, Gf | Domestic and foreign growth factors over the tenor. Simple: 1 + rT; annual: (1 + r)T; continuous: erT. |
Covered vs Uncovered Interest Rate Parity
| Question | Covered Interest Rate Parity | Uncovered Interest Rate Parity |
|---|---|---|
| Inputs used | Spot rate, domestic rate, foreign rate, tenor, and usually a forward contract quote for comparison. | Spot rate, domestic rate, foreign rate, and tenor. |
| Output calculated | No-arbitrage model forward rate, forward points, swap points, forward premium or discount, and market-forward deviation. | Theoretical expected future spot rate from the interest rate differential. |
| Forward contract involved? | Yes. Exchange-rate risk is covered with a forward. | No. The position is unhedged. |
| Exchange risk hedged? | Yes, before costs, collateral, and counterparty terms. | No. The future spot rate can move against the position. |
| When to use | Use the covered interest parity calculator to price or check an FX forward quote. | Use the uncovered interest parity calculator for teaching, scenario analysis, or macro intuition, not a trading forecast. |
Interest Rate Parity FAQ
How do you calculate the forward exchange rate using interest rate parity?
Use covered interest parity: F = S x (Gd / Gf). Enter the spot rate, calculate domestic and foreign growth factors over the same tenor, then multiply spot by their ratio.
Which interest rate is domestic and which is foreign?
For a quote such as USD per 1 EUR, USD is domestic/quote currency and EUR is foreign/base currency. The domestic rate belongs to the currency in the numerator of the quote.
Why is the forward rate different from the spot rate?
The forward rate reflects the interest rate differential over the tenor. Higher domestic rates usually push a domestic-per-foreign forward quote above spot, all else equal.
What are forward points and swap points?
Forward points, or swap points, are F - S in the same quote convention. Positive points mean the forward quote is above spot; negative points mean it is below spot.
Does interest rate parity predict future spot rates?
CIP prices a hedged forward and is not a forecast. UIP gives a theoretical expected spot from rate differentials, but real exchange rates can differ substantially.
When should I use ACT/360 vs ACT/365?
Use the day-count basis from the rate source. Short-term money-market rates often use ACT/360; other rate sources may use ACT/365.
Why might market forwards deviate from covered interest parity?
Market forwards can differ because of transaction costs, funding stress, collateral terms, counterparty credit limits, taxes, balance-sheet constraints, and liquidity differences.
Is my data private?
Yes. The CIP calculator, implied-rate calculator, and UIP calculator run in your browser; no values are uploaded.
Methodology and Trust Notes
- Last reviewed: 30 June 2026.
- Calculation assumptions: rates are annual percentages, tenor is converted to years, and spot and forward quotes must use the same currency convention. Results ignore bid/ask spreads, taxes, collateral, credit risk, capital constraints, and settlement frictions.
- Sources: standard international finance treatments of covered and uncovered interest parity, including Feenstra and Taylor's International Macroeconomics, Mishkin's Economics of Money, Banking, and Financial Markets, and the BIS Quarterly Review article Covered interest parity lost: understanding the cross-currency basis.
- Use: educational calculator output only. It is not trading, investment, accounting, tax, or legal advice.
Interest Rate Parity — Quick Guide
Interest rate parity links currency exchange rates and interest rates. This calculator helps you see how today’s spot rate, forward rate, and interest rates should line up under no-arbitrage assumptions. It is a practical tool for students, analysts, and anyone pricing a currency forward or checking whether a quoted forward rate looks consistent.
Covered interest rate parity (CIP) says that if you hedge currency risk with a forward contract, the return on a domestic deposit should match the return on a foreign deposit once the forward rate is applied. In simple terms, the forward rate adjusts for the interest rate difference between two currencies. The calculator uses the relationship F = S x (Gd/Gf), where G represents the growth factor from interest and time.
Uncovered interest rate parity (UIP) is similar but assumes you do not hedge. It uses the interest rate differential to form an expected future spot rate. UIP is a classic idea in economics, but it is better viewed as a teaching model than a reliable forecast, especially over short horizons.
Implied rate is the reverse problem: if you know the spot, forward, and one currency’s rate, you can solve for the other rate that would make CIP hold. This is useful for checking consistency between market quotes or understanding the forward points embedded in the price.
How to use the calculator:
- Choose whether you want to compute a forward rate, an implied rate, or a UIP expected spot.
- Enter the spot rate and any known forward rate, using the same quote convention.
- Input the domestic and foreign interest rates, plus the tenor in days or years.
- Select the compounding method that matches the rate convention you are using.
- Click Calculate to see the parity results and any implied values.
Real-world uses: this tool helps compare forward quotes, evaluate hedging costs, and sanity-check FX pricing in a treasury or trading context. It also helps students practice covered vs. uncovered parity and see how forward points relate to rate differentials.
Conventions matter: keep spot and forward quotes consistent (D/1F or F/1D), and match your day-count and compounding to the rate source. Small differences can change the result.
All calculations run locally in your browser; nothing leaves your device.
5 Fun Facts about Interest Rate Parity
Premium vs. points
Positive domestic–foreign rate spreads show up as forward points. Flip the quote convention and that premium becomes a discount.
Quote magic
Small r, big tenor
A tiny 0.25% rate gap barely moves a 1M forward, but can swing a 5Y forward by several percent—time stretches parity effects.
Time amplification
Negative rates flip intuition
When a currency has negative rates, its forward can sit below spot even if it’s “strong”—parity cares about carry, not sentiment.
Carry, not vibe
Forward points ≠ forecast
CIP forward levels are a no-arbitrage price, not a guess of where spot will land. Markets often trade far from that path.
Price vs. view