Forward foreign exchange rate formula

Tags: foreign exchange instruments foreign exchange market valuation and pricing

Description of the Forward foreign exchange rate formula

Formula for the calculation of a forward foreign exchange (FX) rate of a currency pair.

C_{f} = C_{s} \cdot \frac{(1 + i_{p} \cdot \frac{n}{N_{p}})}{(1 + i_{b} \cdot \frac{n}{N_{b}})}

C_{s}

Spot exchange rate

i_{b}

Interest rate for a deposit on n days in base currency

i_{p}

Interest rate for a deposit on n days in price currency

n

Number of days between spot date and delivery date of the forward

N_{b}

Number of days per year for the deposit in base currency (360, 365 or 366 depending on )

N_{c}

Number of days per year for the deposit in price currency (360, 365 or 366 depending on )