Mark-to-market value of a forward contract

CFA Level II
#1

Will below two formulas end up the same? Thanks.

Econ

Derivative

#2

I reconcile these in this article I wrote: http://financialexamhelp123.com/mark-to-market-value-of-a-currency-forward-contract/. You have to account for the fact that the Econ formula uses nominal rates while the Derivatives formula uses effective rates (and that the Econ formula includes the contract size).

#3

^

This finally cleared my doubt … And it’s very well written

Thank you very much

#4

I’m glad that it did, and I thank you for your kind words.

My distinct pleasure.

#5

Thanks magician!

It’s hard to believe they are identical…

Your website is very helpful! I like the formula in Econ. It’s cleaner.

#6

You’re welcome.

Good to hear.

#7

thats really helpful, thanks. I find the Econ formula a lot more intuitive.

Can we write the continuously compounded formula similarly as:

FPt-FP/[e^(Rdomcur*(T-t))]

#8

As long as you put parentheses around the numerator, and include the contract size.

#9

Thanks!

#10

You’re welcome.

#11

Thanks for the derivation, but what assumption did you make to make these two jumps?

#12

How you guys add images? Please explain ! frown

#13

Only that financial mathematics works exactly like every other type of (real number) mathematics: commutativity, associativity, distributivity, that sort of thing. For example:

[15(2/3)]/5 = [15(2/5)]/3 = 2.

I didn’t simply move rBC and rPC; I swapped the entire denominators.

#14

How true! Failed to notice the entire line is one expression.

Not obvious this, given a lush canopy of expressions yes

#15

If Latex would let me use multiple colors in an expression, I’d have done so, to make it clearer. Alas, it doesn’t.

#16

Green set against black is good. It’s a new dimension, like in Matrix… :slight_smile:

#17

When you click on the image button, it opens a window “Image properties”. You can only post an image using a URL, can’t just embed directly. If you have an image on your PC you have to upload the image to an online storage, generate a URL, and then use that link.

I used a screen capture program, PicPick, to capture the image, then the program allows to add annotations etc and provides immediate URL generation as well!

#18

Oh wow, a task, thanks for the info. Will add images when deserved !