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Basically trading a forward contract is like trading the underlying currencies, you just have to factor in the foreign and domestic interest rates. For example, say you are trading a EURUSD forward. You just add the cost of carry (CoC) for that maturity to the current spot rate and you have the forward rate (you can find the cost of carry formula in like 2 ...


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To answer this question, you need to know how forward prices are derived : non arbitrage argument. Thanks to it, we will show that we necessarily have $ F_T = S_0e^{rT} $ where $F_T$ is the price of the forward for delivery at time $T$, $r$ the risk-free continuous interest rate and $S_0$ the current price of the asset. If $ F_T > S_0e^{rT} $: I enter ...


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Interest rate parity is not sufficient now There is a cross currency basis between the IRP result and observed market prices, because essentially Libor does not represent the cost of funding; in particular the implied USD funding rate deviates significantly from the USD Libor. Cross currency basis (as a swap) is a traded quantity which covers that ...


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The use of forwards is just another method to look at the underlying. The Black-Scholes options model utilizes Spot and handles the carry as an interest rate in the model. On the other hand the Black Model uses forwards instead. Since the forward price would take into account the carry, both models should yield the same result if one is accounting for all ...


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Your question is using some terminology incorrectly. Forward volatility refers to the volatility realized from t1 to t2 given that it's currently t0 and t0 < t1 < t2. What you are talking about is whether the moneyness of an option is expressed in relative to the spot or relative to the forward. Which parametrization to pick is a choice; as long as ...


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It would be in the form of an FX swap, with the first leg on the last day day of the month/quarter , and the second leg on the first day of the next month. In swap you exchange the notionals on the first leg date, and then reverse exchange the notionals with swap points adjustments on the second date. The swap points reflect the interest rate plus the impact ...


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