Interest Rate Parity Calculator
Use covered interest rate parity to calculate the theoretical forward exchange rate implied by the spot rate and the interest rates of two currencies.
What Is Interest Rate Parity?
Covered Interest Rate Parity (IRP) is a foreign exchange principle stating that the difference between two countries’ interest rates should be reflected in the forward exchange rate between their currencies, so that investors cannot earn a risk-free arbitrage profit by borrowing in one currency and investing in another.
The Formula
Forward Rate = Spot Rate × (1 + Domestic Interest Rate × t) ÷ (1 + Foreign Interest Rate × t), where t is the time period in years and the spot rate is quoted as domestic currency per unit of foreign currency.
If the domestic interest rate is higher than the foreign rate, the domestic currency is expected to trade at a forward discount (a higher forward rate), and vice versa. This calculator uses the standard approximate IRP formula and is intended for general educational purposes, not investment advice.