# Schweser Book 4 Page 115, Question 12 (Reading 39 Risk management)

Ok So the IRP Currency forward rate formula is F=S[1+D/1+F] Rearranged it is 0 = S/(1+F) - F/(1+D) that is in the book on page 94 (Schweser book 4) and can easily be derived from the IRP formula we all know and love… So… Why is is that the answer to this question (p.120) is arranged as F/(1+D) - S/(1+F) ?

What difference does it make?

A - B = 0 is the same as B - A = 0…

If you re-arrange formulas, you can look at them from a different economic perspective. Now it says that the forward rate discounted with the domestic interest rate equals the spot rate discounted to the foreign interest rate.

idreesz Wrote: ------------------------------------------------------- > What difference does it make? It matters because the sign indicates who bears the risk, and I’m apparently getting it backward somewhere…

but does 0 (zero) have a sign? ? your equation = 0 …

Lets forget the 0 and call it Value to the long…

The way they teach it is to find the value/credit risk to the long position and change the sign if you want the value/credit risk to the short, as rolo550 pointed out. F/1+D - S/1+F = value to short (or -value to long), and S/1+F - F/1+D = value to the long (or -value to short). You also have to remember that this is for cases where the currency is quoted in D/F, or direct, terms. If the currency were to be quoted indirectly as F/D, you would switch what the spot and future rates are discounted by. This is probably an uncommon case, but important to remember.