How to calculate the implied interest rate

An implied interest rate is defined as the difference between the spot rate and forward or futures rate on a transaction.

For example, if a forward rate is 7% and the spot rate is 5%, the difference of 2% is the implied interest rate. Or, if the futures contract price for a currency is 1.110 and the spot price is 1.050, the difference of 5.7% is the implied interest rate.

A similar interest rate name with a different underlying concept is the imputed interest rate, which is an estimated interest rate used instead of the established interest rate associated with a debt, because the established rate does not accurately reflect the market rate of interest, or there is no established rate at all.

Related Topics

Currency futures 
Currency swap 
Foreign currency option 
Interest rate futures 
Interest rate swap