About this calculator
This calculator is for education only and does not constitute investment advice. Picture a US company that will receive €1,000,000 in a year. Converting at today's spot rate would give a known dollar figure — but the receipt is a year away, and the spot rate will move. Selling the euros forward locks in a dollar figure today. This page prices that lock-in and measures what it costs, or gains, against converting at today's spot rate.
Two warnings belong at the top, not the bottom. First, the forward rate is not a forecast of the future spot rate: it is the no-arbitrage price set by today's spot rate and the two interest rates, and the market routinely settles far from it. Second, the "cost" here is only versus today's spot rate. If the spot rate falls below the forward rate by settlement, the hedge will look brilliant; if it rises above it, the hedge will look expensive — and neither outcome means the hedge was wrong, because a hedge buys certainty, not the best outcome. Past returns do not guarantee future results.
How to use it
- Enter the foreign-currency amount you will receive — the notional being hedged.
- Enter the spot rate as USD per 1 unit of foreign currency, plus the US and foreign annual interest rates.
- Pick the hedge tenor for the headline result; the table prices every tenor on the same inputs.
- Read the locked-in USD value and the cost or benefit versus today's spot rate — then remember that the real comparison at settlement will be against a spot rate nobody knows today.
The formula
T is the tenor in years. The forward formula is covered interest rate parity: borrow or lend across the two currencies and convert forward, and no risk-free profit may remain — so the forward rate is fully determined by spot and the two rates. When the US rate exceeds the foreign rate, the forward sits above spot and hedging a receipt shows a benefit versus spot (a negative "cost"); when the foreign rate is higher, the forward sits below spot and hedging shows a positive cost. Simple interest is used, the money-market convention for tenors up to a few years. Bank spreads, fees, margin requirements and counterparty risk are excluded, and in practice a company hedges through a bank forward contract, not at this mid-market formula price.
Worked example
A US exporter will receive €1,000,000 in 1 year. Spot is 1.08 USD per euro, the US rate is 4% and the euro rate is 2%: the forward rate is 1.08 × 1.04 / 1.02 = 1.1012, so the hedge locks in $1,101,176.47 versus $1,080,000 at today's spot — a benefit of $21,176.47, or −1.96%. Reverse the rate gap and the sign flips: £500,000 in 6 months at spot 1.27, US rate 4%, UK rate 5% gives a forward of 1.27 × 1.02 / 1.025 = 1.2638, locking in $631,902.44 versus $635,000 at spot — a cost of $3,097.56, or 0.49%. The cost is the price of certainty, not a fee the bank pockets.
Sources: Covered interest parity, simple interest over the tenor (money-market convention). No live rates are fetched; bank spreads, fees, margin and counterparty terms are excluded. Last updated: October 2026.
Frequently asked questions
Is a negative hedging cost too good to be true?
No — it is just the rate gap working in the hedger's favor. When US rates exceed the foreign rate, the forward rate sits above spot, so locking in beats converting at today's spot. But that comparison is against today's spot, not settlement spot: if the foreign currency strengthens past the forward rate by settlement, the unhedged receipt would have been worth more, and the hedge still "cost" the upside given up.
Why is the forward rate not a forecast?
Because nobody forecasts it: it is arithmetic on today's spot rate and interest rates. If the market genuinely expected the spot rate to land on the forward rate, traders would already have moved spot and rates until the arbitrage closed. Treat the forward rate as a price for certainty, and any view on the future spot rate as a separate judgment.
What if I need to hedge a payment, not a receipt?
Reverse the trade: a US company paying foreign currency buys the foreign currency forward instead of selling it. The forward rate is the same; the locked-in USD cost is notional × forward, and the cost versus spot flips sign — a forward above spot now costs more than paying at today's spot. This page models the receipt case only; mirror the comparison for a payment.
What does this page leave out?
Everything a bank would charge or require: bid-ask spreads, fees, margin or collateral, documentation, and the risk that the counterparty fails. It also assumes the receipt amount and date are certain; an uncertain receipt hedged in full can leave the company over- or under-hedged. For real hedging decisions, talk to the company's bank or treasury adviser.
What formula does this fx hedging cost calculator use?
Forward = spot × (1 + US rate × T) / (1 + foreign rate × T); locked value = notional × forward; hedging cost = notional × (spot − forward) T is the tenor in years. The forward formula is covered interest rate parity: borrow or lend across the two currencies and convert forward, and no risk-free profit may remain — so the forward rate is fully determined by spot and the two rates. When the US rate exceeds the foreign rate, the forward sits above spot and hedging a receipt shows a benefit versus spot (a negative "cost"); when the foreign rate is higher, the forward sits below spot and hedging shows a positive cost. Simple interest is used, the money-market convention for tenors up to a few years. Bank spreads, fees, margin requirements and counterparty risk are excluded, and in practice a company hedges through a bank forward contract, not at this mid-market formula price. The worked example on this page applies the formula step by step with real numbers, so you can verify the result by hand.