November 22nd, 2011, 5:38 pm
Hi guys I understand this is a very basic question. 1) How do you calculate the carry in a FX swap (say 3m forward vs spot)?At time t0 parties exchange currencies At time t1 (in 3 months) parties receive 3m libor differential (in a perfect world) -> i(3m)* - i(3m)Now why is the carry received the 3m differential and not (3m differential - overnight differential) -> [i(3m)* - i(o/n)*] - [i(3m) - i(o/n)] ??After exchanging the currencies you should receive/pay rolling overnight and not only the forward discount/premium Am I making any sense?2) How would you then compute the mk2mkt p&l every end of day?Thanks in advance