Could anyone explain me what they are doing on question nr 1?
Don’t get the following formula
The mid-market for CAD/USD is (1.2138 + 1.2259)/2 = 1.21985. The mid-market forward premium (discount) is calculated as:
Could anyone explain me what they are doing on question nr 1?
Don’t get the following formula
The mid-market for CAD/USD is (1.2138 + 1.2259)/2 = 1.21985. The mid-market forward premium (discount) is calculated as:
That`s the formula you need to use when you are calculating a fwd. premium/discount.
Make sure to use the base currency in the denominator.
You multiply 3 parts here:
Spot price (1st part of formula)
Actual/360 divided by 1 + base interest rate x actual/360 (middle part of formula)
Difference between interest rate of price ccy and base ccy (3rd part of formula)
Thats the problem when you rely only on schweser notes for a topic. I ve seen that in the cfa curriculum it’s explained.
But I think it’s the same as calculating the forward price and deduct from them the spot price. isn’t it?
I would say so! We are either dealing with a discount or a premium (i.e. spot price > fwd.price or spot price < fwd. price). I think this topic test refers to the % discount or premium though, so not just the fwd. points itself.