Zestt

boston21 Wrote:
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> This is from 2009 Mock question 9.B... I still get
> confused on the credit risk with forwards....
>
> Lets say you are long a currency forward, and the
> spot is currently higher than the forward rate...
> is this good or bad for you as the long?
>
> Same thing if you were short a forward.... if the
> spot is higher than the forward is this good or
> bad?

You have to compare spot price and adjusted forward price (adjusted for risk-free interest rates). For example, if EUR RFR = 1% and US RFR = 0.25%, you would expect the forward price of Euro to be lower than the spot price.