since maple leaf is long the forward on 50M EUR, doesnt that mean it will pay CAD to receive the underlying 50M EUR…if this is the case i cant see why North Leaf is the one that is long credit risk
Nope…I’m pretty sure Maple Leaf wants to pay EUR and get CAD back (remember they’re a Canadian company).
thanks abushey i understand that but when u say that you are long on 50mil EUR forward what does it really mean? i thought it meant u would be receiving ther underlying
How did you decide what was final currency of credit risk. I had the right answer and right side but put the answer in Euros. What is the actual formula for that? S0/(1 + rF) - F/(1+rDC) Currency is assumed DC?
if S and F are DC/FC F = S * (1+rdc)/(1+rfc) now to find the position St/(1+rfc) - F/(1+rdc)