1. What is Forex Forward Rate?

The Forex Forward Rate is the agreed-upon exchange rate for a currency pair to be settled at a future date. It's calculated by adjusting the current spot rate by the swap points, which represent the interest rate differential between the two currencies.

2. How Does the Calculator Work?

The calculator uses the forward rate formula:

Where:

• \( Forward \) — The forward exchange rate
• \( Spot \) — Current spot exchange rate
• \( Swap Points \) — Points representing interest rate differential

Explanation: Swap points are typically quoted in pips (1/10,000 of most currency pairs) and may need to be divided by 10,000 before adding to the spot rate.

3. Importance of Forward Rate Calculation

Details: Forward rates are essential for hedging currency risk, pricing forward contracts, and managing foreign exchange exposure in international trade and investments.

4. Using the Calculator

Tips: Enter the current spot rate and swap points. The calculator automatically adjusts the swap points appropriately before adding to the spot rate.

5. Frequently Asked Questions (FAQ)

Q1: How are swap points determined?
A: Swap points reflect the interest rate differential between the two currencies and the time to maturity of the forward contract.

Q2: What's the difference between forward points and swap points?
A: They're often used interchangeably, though technically swap points refer specifically to the interest rate differential component.

Q3: How do I know if swap points should be added or subtracted?
A: The sign of the swap points indicates direction - positive points are added, negative points are subtracted.

Q4: What time period do forward rates typically cover?
A: Common periods are 1 month, 3 months, 6 months, and 1 year, though custom dates are possible.

Q5: Are forward rates predictors of future spot rates?
A: Not necessarily - they reflect interest rate differentials, not necessarily market expectations of future spot rates.