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Reading FX Forward Points and Spot Rates

Article Quant Q&A · Author: Under
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Summary

The document explains how quoted foreign exchange forward points adjust a spot bid and ask to produce outright forward prices. Its USD/RUB example adds the quoted points, scaled to the currency pair’s decimal convention, to the corresponding spot sides. This yields a forward quote for exchanging currencies at a future date. The explanation also distinguishes the spot quote from the forward price and notes that interest rates are related to the forward through covered interest parity.

The examples are presented as a practical interpretation rather than a full derivation. The response is uncertain about whether the supplied interest rates are implied rates, and it does not establish how to source market data or fully specify conventions such as day count, settlement dates, and quote precision. Traders should check those conventions before applying the arithmetic to another pair or market.

Key ideas

  • Forward points adjust spot rates to obtain outright forward rates.
  • Apply the points to matching sides of the spot bid and ask.
  • The points’ scale depends on the quote’s decimal convention.
  • Covered interest parity links spot, forward, and the two currencies’ interest rates.

Tags

ForexDerivatives pricing
Full text
# Derivatives (Forex Forward)


# Derivatives (Forex Forward)












Good day, Please, consult me about Forex Forward Swap (Ex. pair USD/RUB). I am trying to calculate and cant understand, how it works. For example: I have: USD/RUB Fwd points 3M - 19650/19950 IR - 10.63/10.78 outright price -80.4318/80.4610 How in works and what formulas shell I use. Thank you.

Update. just to clarify. I have: FWD points 6M USDRUB 38485/38985 Interest Rates RUB 6M 10.47/10.58 Outright price USDRUB 82.7630/82.8130.

My question is how it was calculated and where can I receive data about this issue?

## Answer by nbbo2 (score 2)

https://quant.stackexchange.com/a/22834

You wrote:

outright price -80.4318/80.4610

this is the quote in the spot market. With 80.4610 rubles you can buy 1 USD and with 1 USD you can buy 80.4318 rubles

Fwd points 3M - 19650/19950

this is for the forward contract (to receive/pay rubles in 3 months time). These are "points", that have to be added or subtracted from the spot rate to get the actual price of the forward. So if we take 80.4318+1.9650 we get a price of 82.3968. On the other side, if we take 80.4610+1.9950 we get 82.4560. So to summarize the ruble 3 months from now is quoted 82.3968/82.4560

IR - 10.63/10.78

These I think (not 100% sure) are the interest rates that are implied by the forward contract. They are annual interest rates applicable to a 3 month inter-bank deposit. In theory there is a relationship between the spot, the forward and the difference between Russian and US interest rates, according to the Covered Interest Parity theorem.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.