Value of forward = (spot/(1+foreigh)^t) - (forward/(1+domestic)^t) Usage: Credit risk
Payoff of forward (to Long) = (spot - contracted forward rate)*NP
Also in CFAI, in discussions related to “Managing risk of Foreign currency payment/receipt”, if spot prices changes at the time of forward expiration, the example say that nothing needs to be done.
Can sombody explain the scenarios when above formula should be used? Wouldn’t 2) needs to be calculated in scenario 3)