FX Forward
A future exchange rate implied by two funding curves.
Read the contractual cash flows first.
Forward points compensate for the interest-rate differential, not an expected spot move.
A future exchange rate implied by two funding curves.
Express payoff and present value precisely.
Notation and units
Decimal rates and volatilities, year-fraction time and continuous compounding unless stated otherwise.
Make conventions part of the contract.
Contract dates, calendars, settlement, notionals and payoff currency are part of the valuation input.
Discounting and projection conventions must match the collateral and quotation framework.
The displayed payoff omits legal terms and lifecycle events unless stated otherwise.
“An unstated convention is a future reconciliation break.”— THEQUANTBATEMAN
Locate the quote and replication instruments.
Hedging, carry, basis analysis and option forwards.
Map cash-flow changes into hedge risk.
Reconcile the contractual payoff before reading the FX risk. Small date or convention changes can move cash flows before any model parameter moves.
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