Currency hedging cost estimator
Estimate the approximate cost of currency hedging via a forward contract, based on the interest-rate differential between the two currencies and the margin applied by your bank or broker. No data is sent to a server.
How it works
This tool applies a simplified version of covered interest rate parity, which explains why a currency forward contract costs more or less than a simple spot purchase. The retained annualized cost corresponds to the absolute value of the interest-rate differential between the two currencies, plus the margin applied by your bank or broker. This annualized cost is then pro-rated to the actual duration of your hedge to get an amount in the foreign currency, and converted to your reference currency if you provide a spot exchange rate.
Why does a currency with a higher interest rate cost more to hedge?
In the foreign-exchange market, the price of a forward contract embeds the interest-rate differential between the two currencies: hedging an exposure in a currency whose interest rate is higher than your reference currency's usually results in unfavorable forward points (a cost), while the opposite can produce favorable forward points (a gain). This tool only displays the absolute value of the differential to give an order of magnitude of the cost, without assuming the direction (gain or cost), which depends on the quoting conventions of the currency pair.
Does this estimate replace a quote from my bank or broker?
No. This is a simplified estimate based on the interest rates and margin you enter, useful for quickly comparing scenarios (duration, amount, currencies). The real cost of a currency hedge also depends on the exact forward points quoted by your counterparty, transaction fees, and contractual terms; it does not replace a firm quote or the advice of a financial advisor, accountant, or currency broker.
The calculation runs entirely in your browser: no entered amount or rate is transmitted to a server.