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.
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