Hey guys,
Would anyone know when you calculate the forward of a currency:
1.) Using F=S*(1+i*(days/360)/…
and when
2.) Using F=S*((1+ia)/(1+ib))exp T
?
Many thank!!!
Cheers,
Rolf
In the carry trade calcs they use version 1.) and for the roll yield calcs version 2.)
Spot A/B
Forward exch.rate= SpotA/B * / (IRA * d/360)/(IRB * d/360)
you may use exponent ^d/365 and difference shouldn’t be crucial and I think on level 3 you may feel free to use the first equation, it is irrelevant.
@ Spekulatius
In the carry trade, covered IRP is not used, it is based on violation of uncovered IRP, thus IR differential.
thanks Flashback, sorry for the late response
Yeah, just found it strange. Looked even back at Level II material and in chapter on currency exchange rates I found version 1. used and in chapter on forwards version 2,