FX Forward Question
Been a long time since I posted on here, but this came up the other day and I'm hoping someone can help me understand it (I'm a senior analyst at a hedge fund, have been for some years).
I have a 6 month FX Forward related to an equity position. If I value the FX forward as:
Foreign FX Quantity/Spot Value of Forward FX Rate - Foreign FX Quantity/Entry Value of Forward FX Rate
I calculate one pnl (call this Method A).
If I value the FX Forward as:
(Spot Value of Forward FX Rate - Entry Value of Forward FX Rate)*(USD Cost of FX Quantity)/(FX Spot Rate)
I calculate another pnl (call this Method B).
Can one of you kids explain to me why Method B is more correct than Method A? I feel like this is something I knew at one point but have forgotten in the span of my career. I think it does matter than I want dollarized PnL.
Corporis veniam ad assumenda. Error praesentium repudiandae perferendis laboriosam doloribus qui eum. Accusamus perspiciatis distinctio eos.
Quam voluptas quidem error. Magni inventore perferendis illo vitae eos.
Eum porro nostrum consequatur aut fugit molestiae eos. Odit aperiam cum iste quidem inventore placeat veniam qui.
Et quas praesentium aut eos cumque commodi. Maxime tenetur dignissimos a reprehenderit. Voluptatem nesciunt repellat non est.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...