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How to calculate USD INR Forward Premium & Challenges

Written by QuantArt Market

Forex Hedging | 10 min Read
Best Hedging Strategy For Importers, import port

How to calculate USD INR Forward Premium

QuantArt supports corporates and funds with live USD INR forward premiums and spots so that they get the right rates.

The peculiarity about the Indian forward premium market is that it’s traded directly for month-ends up to 13 months. For any of the G7 currencies, the forward premium can be calculated by using the difference between the two countries’ interest rates typically represented by the interbank term lending rate of that currency. For example, to calculate the forward premium rate for EURUSD for 3 months all you need is 3 Month EURIBOR and 3 Months USD LIBOR.

However, for INR there is no Libor equivalent benchmark and the one which exists is a synthetically created benchmark called MIFOR (Mumbai Interbank forward offer rates). Hence for USDINR forward premiums are traded for every month-end dates starting the current month for 13 months. The premiums are quoted in paisa per USD. For example, if you are on 15th September 2020, you will see a forward premium for 20th September 2020 quoted as maybe 3-4. That means bid is 3 paisa and the offer is 4 paisa. If the spot is 73.50-51 then the export selling rate for 20th September will be 73.53 and the Import buying rate will be 73.55. Similarly, forward premium rate for December 2020 end could be 83-85 paisa signifying the forward rate would be 74.33 for export and 74.36 for import.

The last working day of every month is traded i.e. if the last day is a holiday then the previous day will be quoted. Also would like to mention that the forward premium is for a period starting spot day which is T+2. For example, if today’s date is 14th September then spot date is 16th September. When we see forward premium for 31st December i.e. the forward premium for a period starting 16th September to 31st December.

Now if you want to book forward for any non-month-end dates like 18th October then the same will be calculated by interpolating premiums of September end and October end. Often linear interpolation will suffice however depending on the shape of the forward premium curve, convexity adjustment could be there in the interpolation.

USD INR Forward Premium Challenge

Interestingly it has been observed that 80% of the corporates do not get the right rate in Fx and hence it is important to have access to the right rates and forward premium calculators. QuantArt supports corporates, funds, and institutions with the right spot and forwards premium rates at a very reasonable cost. To know more contact us, through chat or call us.

 You can also Email  or register here for us to setup a 121 discussion to understand whether for your organization has been getting the right Fx price for deal bookings.