Interest Rate Parity Calculator: Analyze Forex Equilibrium Instantly

Use this calculator to check whether a forward FX quote matches interest-rate parity. Enter the foreign rate, spot and forward quotes; the tool returns the implied domestic rate. Example: 3.5 % foreign rate, 0.8450 forward and 0.8300 spot give 5.37 % implied home rate. Global FX trading averages $7.5 trillion each day (BIS, 2023).

Interest Rate Parity Calculator

Enter the interest rate as a percentage (e.g., 5 for 5%)

Enter the forward exchange rate (e.g., 1.2345)

Enter the spot exchange rate (e.g., 1.2000)

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How to use the tool

  1. Interest Rate Y (%): type the annual yield of the foreign currency. Examples: 3.5 or 7.2.
  2. Forward Rate X/Y: enter the agreed future price, e.g. 0.8450 or 1.3050.
  3. Spot Rate X/Y: enter today’s market price, e.g. 0.8300 or 1.2900.
  4. Press “Calculate”: the tool shows the implied home-currency interest rate (Interest Rate X).

Formula

$$ \text{Interest Rate X}= rac{F}{S}\times(1+i_Y)-1 $$

Worked example 1
  • iY=3.5 % ⇒ 1 + iY=1.035
  • F=0.8450, S=0.8300 ⇒ F/S=1.0181
  • Result =1.0181 × 1.035 − 1 = 0.0537 ≈ 5.37 %
Worked example 2
  • iY=7.2 % ⇒ 1 + iY=1.072
  • F=1.3050, S=1.2900 ⇒ F/S=1.0116
  • Result =1.0116 × 1.072 − 1 = 0.0845 ≈ 8.45 %

Quick-Facts [sources]

  • Interest Rate Y input range: 0–100 % as per tool validation (Script source code).
  • FX spot quotes usually carry four to five decimals (Investopedia, “FX Quotes”).
  • $7.5 trillion average daily FX turnover in 2022 (BIS Triennial Survey 2023).
  • Most forwards settle in 1, 3, 6 or 12 months (Madura 2022, International Financial Management).

FAQ

What does the result show?

The percentage returned is the domestic interest rate that keeps covered interest-rate parity in balance (Madura 2022).

Why compare implied and market rates?

If the implied rate differs from the actual domestic yield, covered arbitrage may exist because parity fails (Hull 2018).

Which currencies work?

You can enter any pair; the formula only needs a consistent quote direction and matching interest rate period (OECD Glossary).

How precise are outputs?

The tool rounds to two decimals; underlying math is exact to 1e-4, suitable for classroom and desk analysis (Script source).

Does the tool include transaction costs?

No. Add bid–ask spreads and fees yourself; parity gaps under 10 bp often vanish once costs apply (BIS 2020, FX spread report).

Can I test multiple horizons?

Yes—change the forward tenor (e.g., 3-month vs 12-month) and rerun; longer horizons amplify interest-rate effects (Hull 2018).

Important Disclaimer

The calculations, results, and content provided by our tools are not guaranteed to be accurate, complete, or reliable. Users are responsible for verifying and interpreting the results. Our content and tools may contain errors, biases, or inconsistencies. We reserve the right to save inputs and outputs from our tools for the purposes of error debugging, bias identification, and performance improvement. External companies providing AI models used in our tools may also save and process data in accordance with their own policies. By using our tools, you consent to this data collection and processing. We reserve the right to limit the usage of our tools based on current usability factors. By using our tools, you acknowledge that you have read, understood, and agreed to this disclaimer. You accept the inherent risks and limitations associated with the use of our tools and services.

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