# How to calculate the implied interest rate

The implied interest rate is the difference between the spot rate and the forward rate or futures rate on a transaction. When the spot rate is lower than the forward or futures rate, this implies that interest rates will increase in the future.

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. This interest rate is most commonly used when a loan agreement contains either no interest rate or an extremely low one, and so must be adjusted back to a market rate before it can be recorded as an accounting transaction.

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