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Covered Interest Rate Parity Calculator — result sheet
Estimate a no-arbitrage forward exchange rate from a spot quote, domestic and foreign interest rates, term, and an observed forward scenario.
Inputs used
Results
Visual chart
Breakdown
Calculation steps
Returned data table
Formula and methodology
Formula: Covered-parity forward = spot×[(1+domestic rate)/(1+foreign rate)]^term; forward points = parity forward−spot; parity gap = observed forward−parity forward.
This scenario uses a clear quote convention: the spot and forward rates are quote-currency units for one base-currency unit. Under the stated annual-compounding assumptions, the domestic-to-foreign interest differential changes the parity forward rate. An observed forward input lets the visitor see the mechanical gap without treating that gap as a guaranteed arbitrage opportunity, because market frictions and contract terms matter.
This result follows the calculator's declared inputs, precision, validation boundaries, and model limits.
Input contract
- Spot exchange rate — quote units/base unit; minimum 1.0E-9; maximum 1000000000000
- Domestic interest rate — % per year; minimum -99.999999; maximum 1000
- Foreign interest rate — % per year; minimum -99.999999; maximum 1000
- Term — years; minimum 1.0E-6; maximum 100
- Observed forward rate — quote units/base unit; minimum 1.0E-9; maximum 1000000000000
Worked example
| Input | Value |
|---|---|
| Spot exchange rate | 1.08 |
| Domestic interest rate | 5 |
| Foreign interest rate | 3 |
| Term | 1 |
| Observed forward rate | 1.101 |
With the stated quote convention, parity forward is 1.10097 quote units per base unit; the calculator also shows forward points, premium/discount, and the observed-forward gap.
Assumptions and limits
- The exchange-rate quote is quote-currency units per one base-currency unit for both spot and forward values.
- Domestic and foreign rates are annual rates applied with annual compounding over the entered term.
- The entered rates refer to comparable instruments and the same maturity.
- The observed forward is a user-supplied scenario, not a live market quote.
- Transaction costs, bid/ask spreads, collateral, credit risk, capital controls, liquidity, and cross-currency basis are excluded.
- The result explains a parity relationship and is not investment, trading, or foreign-exchange advice.
Calculator note
Source and methodology
Use the official WorldCalculate methodology policy for the source, formula, precision, and boundary standards behind this calculator.
Planning estimate, not financial, medical, legal, or professional advice. © WorldCalculate — reuse with attribution. Built and curated by Hassan ALRowaie.
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