Is spot currency less than forward in this example?

[dkpmba]

Why is spot less than forward in this example. I think the answer is contradicting itself. Below it is saying ZAR trading at discount and just before that its saying spot is less than forward. Shouldn’t it be forward less than spot?

 

[naren]

the spot amount of ZAR needed to buy 1 USD (S USD/ZAR) is less than the forward amount (F USD/ZAR.)

 

[dkpmba]

Still confused.
F = S * 0.9961
that means Forward price is less than Spot price (trading at a discount) then how Spot is less than Forward
Am I missing some key concept here?

 

[S2000magician]

If the forward price of ZAR in USD is less than the spot price of ZAR in USD, then the spot price of USD in ZAR is less than the forward price of USD in ZAR.
The explanation’s written very poorly: either they meant what I just wrote (which I doubt), or they simply blew it.

 

[ov25]

I think you are right – there seems to be an issue the way they narrated…..

I think you put the currency you are short in the denominator and measure forward and spot; if f>s! pickup negative roll yield and vice versa —-I know it’s confusing so came up with this empirical formula:

Example:
Let’s say current spot of usd/zar = 0.09510 current 6 month forward is trading at 0.09275 (expected spot Sb) however the managers projection from interest rate parity is that 0.09473 ( Fb)

I am long usd, short zar; if my forward zar (0.09473) < spot zar(0.09510), then I have positive roll yield .4%
Vice versa,
If I am short usd long Zar, my forward usd (10.55) > spot usd (10.52)then I have negative roll yield

 

[dkpmba]

OV25: Plz check your statements
if my forward zar (0.09473) < spot zar(0.09510), then I have (should be negative because you are shorting ZAR) yield because F(USD/ZAR) < S(USD/ZAR)
I am just going to rote this thing in my mind.
F(A/B) > S(A/B) => Long(B) has negative yield and Short(B) has postitive yield
F(A/B) < S(A/B) => Long (B) have positive yield and Short(B) has negative yield

 

[ov25]

ov25 wrote:
I think you are right – there seems to be an issue the way they narrated…..

I think you put the currency you are short in the denominator and measure forward and spot; if f>s! pickup negative roll yield and vice versa —-I know it’s confusing so came up with this empirical formula:

Example:
Let’s say current spot of usd/zar = 0.09510 current 6 month forward is trading at 0.09275 (expected spot Sb) however the managers projection from interest rate parity is that 0.09473 ( Fb)

I am long usd, short zar; if my forward zar (0.09473) < spot zar(0.09510), then I have positive roll yield .4%
Vice versa,
If I am short usd long Zar, my forward usd (10.55) > spot usd (10.52)then I have negative roll yield

let me try 1 more time backwards, you short zar forward means you are lng the asset. so you short usd/zar forward (0.09473) whose spot is greater (0.09510) ===> this will create a spot > forward situation ====> positive roll yield
lets say i want to exit my forward position, my current portfolio zar asset is (10.52 zar) when i settle a month later my portfolio would be 10.55 zars. so positive roll let me know where i am wrong