Can someone take a peek at at volume 1, p.516, the example in the CFAI texts and explain to me how to get the correct answer using the formula for marking to market a forward:
(FP -FPt)(contract size)/(1 + (rate*(days/360))
This stuff is just destroying me…Schweser and even university wrote it out using this formula but the text is trying to explain another way…
The dealer is shorting here. I’m just confused a good amount on that example…any help is unbelievably appreciated…hate skipping stuff…I got 1. And thats it/
What I’m trying to do is follow the schweser method with the example given. It worked for the example given right before Example 3. Right before Example 3, it has a market participant bought GBP at 10 million at an all in forward rate of 1.61 AUD/GBP.
Knowing Participant is going LONG GBP — used the Down the ask technique with
(FP -FPt)(contract size)/(1 + (rate*(days/360))
Then FPt = 1.61 ------- FP = 1.6340 where we use the Bid price and not the offer price because we used the Ask for FP. And so on and I get the correct answer.
No idea how to do example 3 though…Cant follow it…This time it’s the dealer and he’s going short(Not a market participant) Dont know if that matters. Going short definitely does though. But cant follow the technique.