When marking to market a forward prior to maturity (in Economics section), why is this the formula (FP -FPt)(contract size)/(1 + (rate***(days/360))** where we multiply by days/360 instead of taking the TO THE POWER of days/360? I thought when we discount back the value of the forward in the Derivatives section we do FP/(1+RFt) ^days/360
Please help? These are the stupid things that cost exam points, even when you “know” the material.
That’s what I thought…but in this problem from Schweser, they say Interest Rates but then Multiply
Yew Mun Yip has entered into a 90-day forward contract long CAD 1 million against AUD at a forward rate of 1.05358 AUD/CAD. Thirty days after initiation, the following AUD/CAD quotes are available: Maturit)’: FX Rate Spot 1.0612/1.0614 30-day +4.91+5.2 60-day +8.61+9.0 90-day +14.6/+16.8 180-day +42.3/+48.3 The following information is available (at t=30) for AUD interest rates: 30-day rate: 1.12% 60-day rate: 1.16% 90-day rate: 1.20% What is the mark-to-market value in AUD ofYip’s forward contract? = (1.06206 - 1.05358)(1,000,000) / [1+0.0116***(60/360)]**