May 14th, 2013, 1:49 pm
Hi, I found from the CFA book that there is 2 version to calculate value of Currency Forward prior to expiration. Denote:S(t) : Spot rate at time t of domestic currency in terms of foreign currencyF(t,T) : Forward Price at time t of domestic currency in terms of foreign currency Expiring at time TR(dc) : annual interest rate of domestic currency R(fc) : annual interest rate of foreign currency For simplicity assume the Forward Expire in 1 year from Now (Now is at time t): <Version 1>Value = S(t)/(1+R(fc)) - F(0,1)/(1+R(dc))<Version 2>Value = (F(t,1)-F(0,1)) / (1+R(dc))It seems that the 2 formulas are not necessarily equivalent. Anyone have idea or come across on that? Or there is another formula for that?Thanks in advance.
Last edited by
yktsui on May 13th, 2013, 10:00 pm, edited 1 time in total.