Calculate Forward Points, Yield Curves, and Spot Prices

The formula is:

Interest rate differential × number of days × outright/interest rate base (Day Count) × Spot × 100

Suppose Australian dollar/U.S. dollar yield spread is 418.9 bp or 4.189 percent/U.S. yields 2.625 percent.

FX points midday=790=0.8786/0.8706 2 year outright/Spot=0.9581/84. From above formula-4.188 percent × 730 (2Year) × 0.8796/365 × 0.95825 (Mid spot price) × 100=2689.148/38090.27=7.059935/100=.0705 points market forward.

Or suppose $1 is invested in Australia at 6.813 percent and $1 is invested in the United States at 2.625 percent for one year. The difference would be the dollar's discount reflected in spot points 0.95825 × 0.04188=.0401 or 401 pts, twice that is 802. Mid ...

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