I need help in calculating the fwd rate when swap points are given. I have read that when Swap points are in increasing order, we need to add the same to spot rate to arrive at fwd rate and vice versa. BUT i hv realised that it's not so.
Consider following example:
Bid - Ask
Spot Rate : Rs./USD >> 40 - 45
USD intt rate >> 8%, India Intt Rate >> 10%
Thus applying IRPT, the fwd rate should be Rs./USD >> 40.74 - 45.83
Swap points are : 0.74/0.83.(increasing order.)
Now, if intt rates are changed as USD intt rate>> 10%, India intt rate>> 8%
then fwd rate should be Rs./USD >> 39.27 - 44.18
Swap points are : 0.73/0.82 (again in increasing order)
From above, it is concluded that swap pts. are not always added to spot when in increasing order.
Further, which situation can lead to swap points in decreasing order and what should be done in that situation?
CAclubindia
