Currency Forward : Add-on / Compounding ? interest, forward, someone, please, should

hoangvu90

Can someone please clarify...if we should use to the power ^ or divide incase of forwards on currencies....

Based on Economic (Schwezer, Page 319) it is add-on :
Example: US Annualized interest rate 9%, Euro Annualzied interest rate 12%. Spot rate $1.30/Euro. Calculate 3month forward rate....

Ans: 1.2875 $/Euro.

Based on Derivatice - Currency forwards( Schwezer, Page 27) it is compunded :
Example: Risk free rate in US 6%, in Mexico 8%. Spot rate $0.0845/mxn. calculate 180day forward contact.
Ans: 0.0837 $/Mxn.



I have not looked at CFAI texts:...