valuation of Currency Forward in Reading 12 compared to Reading 47 (Forward markets and contracts)

The formula for mark-to-market of Currency Forwardin the Reading 12 is based on Forward price at the time t whereas the formula for valuation of FX forward in Reading 47 takes a Spot price at the time of valuation.

Moreover, the way for discounting is different (in the Reading 12 it uses 360 days and simple interest, whereas according to the valuation formula we should use compound interest based on 365 days).

Can someone explain why we have this inconsistency in those methods? I know that one is used to see if there is consistency with the interest rate parity and the other is used to value the instrument but should they not be the same?


I wrote a couple of articles covering exactly this:

The upshot is that they’re exactly the same (apart from the fact that the Econ formula assumes nominal interest rates while the derivatives formula assumes effective interest rates). < this makes it clear, thanks a lot!

You’re quite welcome.