I undrestand the formula is: (S1-S0)/S0 - (Rdc-Rfc) But is S1 and S0 in DC/FC or FC/DC? Thanks
dc/fc
lets not get confused here… dc/fc is very tricky for me… if its in USD/EUR than its {s1(USD/EUR) / s0(USD/EUR) -1 } - {Interest rate in USD - Interest rate in EUR}
remember that the forward premium/discount is in terms of the FC currency when calc’d w/ direct quotes… then add the interest differential to get total.
Also helpful to remember when in DC/FC form, a forward premium or discount refers to the currency in the denominator… Also… don’t forget to know your real versus nominal rates DC/FC: S = real S * dompricelevel / forpricelevel