# Interest Rate Parity Calculator

URL: https://speedycalculator.com/calculators/finance/interest-rate-parity/
Last updated: 2026-10-25

> The interest rate parity calculator works out the forward exchange rate implied by the interest rate differential between two currencies (covered interest rate parity) – or tests for an arbitrage opportunity against a quoted forward rate.

## Inputs

- Spot rate (quote per base)
- Interest rate – quote currency (%)
- Interest rate – base currency (%)
- Time (years)
- Quoted forward rate (optional)

## Results

- Parity forward rate
- Quoted minus parity forward
- Arbitrage

## Formula

```
Forward = spot × (1 + i_quote)^t ÷ (1 + i_base)^t
Arbitrage profit per unit = quoted forward − parity forward (if different)
```

## Explanation

Covered interest parity holds very closely in normal markets because any gap would be arbitraged away; small deviations appeared after 2008 because of bank balance-sheet costs.

### How to use the Interest Rate Parity Calculator

- **Spot rate (quote per base)**
- **Interest rate – quote currency**
- **Interest rate – base currency**
- **Time**
- **Quoted forward rate (optional)**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter the spot rate (quote currency per base unit), the two interest rates, the time in years and an optional quoted forward rate.

### Tips

- Use real (inflation-adjusted) figures to compare across years.
- Check whether data are seasonally adjusted.
- Use the same currency and base year throughout.
- Economic models simplify reality – treat results as illustrations, not forecasts.

### Common mistakes to avoid

- Mixing nominal and real values.
- Comparing percentage changes with percentage-point changes.
- Treating correlations as causes.

### Inputs explained

FieldWhat to enterSpot rate (quote per base)A numberInterest rate – quote currencyIn %Interest rate – base currencyIn %TimeIn yearsQuoted forward rate (optional)A number

### What each result means

- **Parity forward rate** = [Spot rate (quote per base)]×((1 + [Interest rate – quote currency]÷100)÷(1 + [Interest rate – base currency]÷100))^[Time]
- **Quoted minus parity forward** = [Quoted forward rate (optional)] - [Parity forward rate]

### Example values

How the main result changes when **Spot rate** changes and everything else stays at the example values above:

Spot rate (quote per base)Parity forward rate0.6350.63960.95250.95941.271.27921.591.5991.911.91882.542.5584

## Worked example

Inputs — Spot rate (quote per base): 1.27; Interest rate – quote currency: 4.5 %; Interest rate – base currency: 3.75 %; Time: 1 years; Quoted forward rate (optional): 1.28.

Results — **Parity forward rate = 1.27918**; Quoted minus parity forward = 0.00082; Arbitrage = Forward overpriced: borrow quote currency, sell it forward.

## FAQ

**What is interest rate parity?**
The theory that interest rate differences are offset by forward exchange rates.

**What is covered vs uncovered parity?**
Covered uses forward contracts; uncovered relies on expected spot rates.

**Does interest rate parity hold?**
Covered parity holds closely; uncovered parity often doesn't.

**What formula does the Interest Rate Parity Calculator use?**
Forward = spot × (1 + i_quote)^t ÷ (1 + i_base)^t.