Value of forward currency contract prior to expiration

[abhiroopron]

Hi friends,
I have a doubt pertaining to the formula given in for valuing a currency forward prior to expiration.
The discounting to current day is done by dividing the numerator [ 1 + R(days/360)]. This is essentially discounting at simple interest. Why is the discount factor not [1 + R]^days/360 which would be discounting at a compound rate (which is used in forwards material of the curriculum btw)
Thanks!

 

[S2000magician]

The formula in Economics uses nominal rates (your first formula) while the formula in Derivatives uses effective rates (your second).
That’s the way things go.

 

[abhiroopron]

I know this is a very late reply, but thanks a lot !

 

[S2000magician]

You’re quite welcome.
I hope that it was helpful.