How the Forward Premium Calculator works
A forward premium (or discount) measures how much more, or less, a currency costs for future delivery compared to buying it today at the spot rate — expressed as an annualized percentage so contracts of different lengths can be compared directly. This calculator applies the standard money-market formula used across FX trading desks and international finance textbooks.
The formula
For a spot exchange rate S, a forward exchange rate F (both quoted as domestic currency per unit of foreign currency), and Days to maturity of the forward contract, the annualized forward premium is:
Forward Premium % = ((F − S) / S) × (360 / Days) × 100
A positive result means the foreign currency is trading at a forward premium — the forward rate is higher than spot. A negative result means it is trading at a forward discount — the forward rate is lower than spot. The calculator uses a 360-day money-market convention by default (the FX and short-term-rate market standard), with an option to switch to a 365-day calendar-year basis, since some markets such as GBP quote on 365 days.
Worked example
Take a spot rate of 1.0850 and a 90-day forward rate of 1.0920. The period premium is (1.0920 − 1.0850) / 1.0850 = 0.6452%. Annualizing on a 360-day basis: 0.6452% × (360 / 90) = 2.5806% per year. On a €100,000 notional, the forward rate is worth $700 more than the spot rate over the 90-day contract (100,000 × (1.0920 − 1.0850)).
Relationship to interest rate parity
Under covered interest rate parity (CIRP), the annualized forward premium or discount should approximately equal the interest rate differential between the two currencies: Premium ≈ domestic interest rate − foreign interest rate. A currency with a lower interest rate tends to trade at a forward premium, and a currency with a higher interest rate tends to trade at a forward discount — the forward market compensates for the rate gap so that riskless arbitrage isn't profitable. This calculator computes the premium directly from quoted spot and forward rates and does not require interest rate inputs.
What moves the result most
- The spread between forward and spot rates: even a small difference compounds into a meaningful annualized figure once scaled by the 360/Days factor, especially for short-dated contracts.
- Days to maturity: the same rate spread annualizes to a much larger percentage on a 30-day contract than on a 360-day contract — always compare annualized premiums, never raw rate differences, across contracts of different lengths.
- Day-count convention: switching between 360 and 365 days changes the annualized figure by roughly 1.4%, which matters when reconciling quotes from different market conventions.
Assumptions and limits
This calculator performs pure arithmetic on the rates and term you enter — it does not source live market quotes, account for bid-ask spreads, credit or counterparty risk, or transaction costs, and it is not personalized financial or trading advice. Use it to translate quoted spot and forward rates into a comparable annualized figure, and verify live pricing with your broker or dealing platform before acting on it.