uppose that a market participant bought GBP 10 million for delivery against the AUD in six months at an “all-in” forward rate of 1.6100 AUD/GBP. (The all-in forward rate is simply the sum of the spot rate and the scaled forward points.) Three months later, the market participant wants to close out this forward contract. This would require selling GBP 10 million three months forward using the AUD/GBP spot exchange rate and forward points in effect at that time.10 Assume the bid–offer quotes for spot and forward points three months prior to the settlement date are as follows:
To sell GBP (the base currency in the AUD/GBP quote), we will be calculating the bid side of the market. Hence, the appropriate all-in three-month forward rate to use is
1.6210 + 130/10,000 = 1.6340.:
Why are we looking at the bid side of the market ?? Shouldn’t it be the sell side?