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smartpants

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tT
发表于 2013-4-1 13:51 | 只看该作者

Quick credit risk question for forwards

question, positive, position, long
So before expiration, is the value to the long position just
Spot / 1+Rf foreign ^ n
minus
Forward / 1 + Rf Domestic ^ n
If this value is positive then the long faces credit risk?
At expiration, is the formula just
Spot - Forward, and if it is positive then long faces risk?
This subject is going to be the death of me in 2 days
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anshultongia

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2#
发表于 2013-4-1 13:51 | 只看该作者
It looks right to me for longing a foreign currency. Remember to state all Fx rate in indirect method.

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parott

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3#
发表于 2013-4-1 13:51 | 只看该作者
The indirect method is:
FX rate = Domestic currency / Foreign currency
Direct method has the Foreign Cur. as the nominator and Domestic Cur. as the denominator. Either in 07 or 08 AM exam, there was a Q providing the direct method FX rates in order to trick the candidates. In that case, u would need to convert them back to indirect method to do the calc.

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segalm

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4#
发表于 2013-4-1 13:52 | 只看该作者
Ahh I see it now…. yup it was in 2008 question 7C they gave it to you in Yen/ZAR when the company is a south african company… no wonder why the answer was not making sense…. thanks a lot for the clarification.

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