Interest Rate Parity Calculator - Forward Exchange Rates

Covered interest rate parity links two money-market rates to the forward exchange rate that should prevail if investors can hedge without earning a riskless profit. If domestic interest rates exceed foreign rates, the domestic currency should trade at a forward discount versus spot so that borrowing in one market and investing in the other, then covering with a forward contract, does not beat a simple domestic deposit. The interest rate parity calculator uses the annual compounding identity: forward = spot × ((1 + domestic rate) ÷ (1 + foreign rate))^time. Enter rates as decimals of 1, not basis points, and enter time in years. With a 5% domestic rate, 3% foreign rate, and a 1.2000 spot, the one-year parity forward is 1.2233. A quoted forward of 1.2500 then sits 0.0267 above parity, which is the difference the results panel reports in both rate points and percent. Traders, treasurers, and students use covered interest parity as a no-arbitrage benchmark, not as a forecast of the future spot. Uncovered interest parity replaces the forward with the expected future spot and does not hold reliably in data. Transaction costs, capital controls, different day-count bases, and credit risk on deposits can all open a gap versus the textbook forward. If you paste a market forward into the optional field, the calculator subtracts the theoretical forward so you can see how wide that gap is. Keep both rates on the same compounding and tax basis. A U.S. dollar LIBOR or SOFR quote is not automatically comparable to a foreign policy rate. The quote convention for the exchange rate must stay consistent: if spot is domestic per foreign unit, the same units apply to the forward. The calculator does not solve for implied rates, does not adjust for cross-currency basis, and is not a trading signal. Use it to check a quoted forward or to explain why a high-rate currency can still sit at a forward discount.