Econ: MTM Forward Contracts

CFA Level II
#1

I feel like CFAI and Schweser are giving conflicting information.

In the numerator of the formula we see (FP_t_ - FP)(Contract Size). My notes state: FP= price locked at inception FP_t_= termination forward price

Are those correct? I have Schweser using FP for inception price while CFAI doesn’t. I suppose I could just use my intuition to see if the currency is appreciating or depreciating, but it’d rather go with a smooth formula.

Thank You!

#2

Can you provide the page numbers where you see the difference?

#3

Formula is correct. You also have to discount this for IR of pricing currency with T-t/365.

#4

It from one of the problem CFAI online problem sets, and I don’t want to get in trouble for going against the disclaimer. Though how would define what FP and FP_t_?

#5

FP is the original forward price (hence, no subscript).

FP_t_ is the forward price at time t (hence, the subscript).