Mark-to-market value of a forward contract

[FrankCFA]

Will below two formulas end up the same? Thanks.
Econ
Derivative

 

[S2000magician]

I reconcile these in this article I wrote: http://financialexamhelp123.com/mark-to-market-value-of-a-currency-forwa.... 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).

 

[Life is Overwhelming]

^
This finally cleared my doubt .. And it’s very well written
Thank you very much

 

[S2000magician]

Life is Overwhelming wrote:^
This finally cleared my doubt .. And it’s very well written

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

Life is Overwhelming wrote:Thank you very much

My distinct pleasure.

 

[FrankCFA]

Thanks magician!
It’s hard to believe they are identical…
Your website is very helpful! I like the formula in Econ. It’s cleaner.

 

[S2000magician]

FrankCFA wrote:Thanks magician!

You’re welcome.

FrankCFA wrote:It’s hard to believe they are identical…
Your website is very helpful!

Good to hear.

 

[Kman2001]

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))]

 

[S2000magician]

Kman2001 wrote: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))]

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

 

[Kman2001]

Thanks!

 

[S2000magician]

You’re welcome.

 

[krokodilizm]

S2000magician wrote:
I reconcile these in this article I wrote: http://financialexamhelp123.com/mark-to-market-value-of-a-currency-forwa.... 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).

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

 

[Harrogath]

How you guys add images? Please explain !

 

[S2000magician]

krokodilizm wrote:

S2000magician wrote:I reconcile these in this article I wrote: http://financialexamhelp123.com/mark-to-market-value-of-a-currency-forwa.... 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).

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

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.

 

[krokodilizm]

How true! Failed to notice the entire line is one expression.
Not obvious this, given a lush canopy of expressions

 

[S2000magician]

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

 

[krokodilizm]

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

 

[krokodilizm]

Harrogath wrote:
How you guys add images? Please explain !

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!

 

[Harrogath]

krokodilizm wrote:

Harrogath wrote:
How you guys add images? Please explain !

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!

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