Broken-Date Forwards and Forward Point Interpolation

FX forward points, the adjustment added to the spot rate to get a forward rate, are quoted by dealers only at standard tenors: 1 week, 1 month, 2 months, 3 months, 6 months, 1 year, and so on. A corporate treasurer or portfolio manager who needs a forward for an odd maturity, say 47 days from now because that matches an invoice due date, is asking for a broken date: a tenor that falls between two standard quoted points.

The practical fix is interpolation: take the forward points quoted for the two standard tenors bracketing the broken date (here, 1 month and 2 months) and interpolate between them, most simply by linear interpolation on the points themselves, though some desks interpolate on the implied interest-rate differential instead for a slightly more theoretically consistent number. Linear interpolation on points is simpler and close enough for most maturities, but it can introduce a small error precisely because forward points don't move perfectly linearly with time, the underlying interest-rate differential compounds, so points curve slightly rather than sitting on a straight line between two quoted tenors.

For a broken date very close to a standard tenor the error from linear interpolation is negligible; for a broken date sitting roughly in the middle of a wide gap (say between 3 months and 6 months) the interpolation error is largest and worth checking against a rate-based interpolation if the notional is large.