Hi, First of all, are we supposed to know the calculations ? Second, in CFAI book 5, reading 37, page 49, there are two calculations- one for forward and one for swap. I do not understand the logic behind the forward calculation-can anybody explain? Thanks,
Whoever is better off has the credit risk. This is the bottom line. I contract with a bank in forward agreement. When rate moves, ask yourelf “Am I better off with or without the forward agreement?” If I am better off with the forward, then I have credit risk; if you are not better off with the forward, then the counterparty (bank) has credit risk. Helps some? I am too lazy to do the math part.
I wanted to know whether to spend my time (very limited ) to practice the calc ? It’s not too difficult though
Well, LOS says “evaluate” which can mean “calculate” - so my guess is yes, we’re supposed to know these calculations.