I swear I actually have a decent understanding of how to value swaps & FRAs, currency swaps, ect. But I think I’ve confused myself-
My question is- to value a currency swap given that the contract locked in is say .5$/Yen. If we want to value the contract 90 days after initiation, I know the long would win if the underlying goes up. To calculate the value 90 days in, given the spot is now .8$/Yen, we would discount the spot at the Yen RFR & the forward locked in rate at the US risk-free rate. After all, that is where our exposure would be if we indeed used the forward market to hedge Yen exposure, right?
Here is my confusion- let’s say instead of simply given the spot rate 90 days after initiation, we are also given new RFR curves for USD & Yen. Can’t we use these rates to calculate what the new forward rate would be, take the difference between this new forward rate & the locked in forward rate, and discount it back for the value of the forward contract 90 days after initiation? What discount rate would be used in this case though? And am I right in what I said in paragraph 1??
Sorry for the loaded question…
Thnx