I have had a hard time with this topic until I decided to put it to rest once and for all. I have determined the authors have done a poor job of linking readings 17 and 18 and their formula conventions, making it hard to follow (in my opinion). The problem is the examples in 17 are in Direct quotes and in 18 they are indirect
This is how decided to interpret and think it makes it a bit easier. Maybe I overcomplicated, but the follwing is what works for me.
I put everything in terms of S= a:b
a = quoted
x_a, = rate or inflation for a, depending on formula
x_b = " " for b
All the formulas are roughly the same F = S * (1+x_b/1+x_a)
Differentials (x_b - x_a)
For the “a” Currency–
Forward discount: Forward less that spot
discount = less = weak, i.e. “a” is weak to “b”
Question will state foreign, domestic home, base.
Everything is a:b
a:b = b/1. Every pair is x/1. Determine what the “1” is. For example-- EUR:USD = 1:1.25 = 1.25/1
If question states that FC = EUR, then FC:DC = a:b. if FC = USD, then DC:FC = 1:1.25.
so if DC:FC (a:b) where DC(a) = Forward less than spot, DC forward discount.
in short, remember in all the formulas, it is b in numerator, a in denominator
REMEMBER: for S:a:b, “b over a or b-a” , “a” forward discount when F less spot.
Then map FC:DC or DC:FC to a:b.
You can figure out any permutation of the questions from there without having to try to keep straight in your mind which is foreign, etc.
Hope this helps. If anyone finds flaw in logic, please post. I have gone over many problems and has worked for me.