Argggh, on top of it:
CFA for currency forward contracts use compounded interest for the interest rates for domestic and foreign currencies. For example, if annual rate for a currency is 6%, and we want a forward for 180 days, the interest would be calculated as (1+0.06)^(180/360)
Back in economics, to calculate forward rates, we used simple interest (similar to LIBOR). For example, if annual rate is 6% for foreign currency, a forward 180 days from now would be computed by going 0.06*(180/360)
How do we distinguish what’s correct?