Identifier: C3T6L2 · Revision: 2026-10-26 · Classification: restricted

Decision and objectives

Calculate a simple matched-date forward from two funding curves. The decision record must connect the exposure, cash dates and implementable contract, rather than stop at a favorable price forecast.

By the end, you can calculate a simple matched-date forward from two funding curves; use asymmetric rates when comparing executable directions; explain why forward points are not a forecast.

Prerequisite: C3T6L1; completed Classes 1 and 2 and the Stock Market School foundation or Forex School foundation. All cases below are hypothetical; their prices, costs, rates, dates, contractual assumptions and collateral amounts are teaching inputs, not current offers.

Mechanics

A covered currency comparison carries a spot currency exchange to the same future date through borrowing and investing. This is the same economic two-rate logic taught for futures, but the forward's cash exchange is concentrated on its agreed settlement date. A zero initial premium in a hypothetical at-market forward does not imply zero value thereafter or no credit usage.

A bank's actual outright can reflect credit, capital, cross-currency basis, liquidity and service charges as well as rates. Positive points on TRY/USD therefore do not prove that the bank predicts a dollar rise.

Price and return drivers

Simple F = spot × (1 + quote-currency rate × quote year fraction)/(1 + base-currency rate × base year fraction). Use each currency's contractual basis and dates; the same calendar days can produce different year fractions. For a replication, apply borrowing and investing rates in the correct direction and preserve executable spot bid/ask.

Worked case

Hypothetical spot 40 TRY/USD; 180 days. TRY borrowing rate 36% actual/360; USD investing rate 5% actual/360. F = 40 × 1.18/1.025 = 46.048780 TRY/USD. For USD 100,000 the model maturity lira amount is TRY 4,604,878.05. A bank ask 46.10 adds TRY 5,121.95 relative to that model; a separate charge TRY 1,500 makes TRY 6,621.95 total model-to-customer difference before collateral funding and tax. The outright already contains carry: do not add the same theoretical interest again to its invoice payment.

Adverse case

If the TRY funding is actually 42%, the same formula gives 47.219512 and model maturity TRY 4,721,951.22. Funding mismatch is TRY 117,073.17 on USD 100,000. A quote using a 365-day base on one currency needs recalculation, not rounding to the nearest month. If collateral terms impose daily lira payments, a supposedly maturity-only cash plan also becomes incomplete.

Practical use

Request the day counts, spot value date, holiday adjustment, credit terms, collateral and termination method with the executable offer. Compare the actual ask against a hypothetical theoretical reference only as a cost diagnosis. Include embedded spread once, explicit fees, credit charges, collateral or reserve funding, conversion and tax. Current rates are deliberately not asserted.

Reconcile the confirmation, position register and cash statement separately. Costs include the quoted bid/ask spread, brokerage and clearing charges, collateral or principal financing, currency conversion, custody where relevant, and exit or termination charges. A mark is not a fill. Any amount explicitly excluded below remains outside the reported result. Tax is excluded from these teaching cases: an actual comparison requires income year, investor residence and individual/corporate status, contract and acquisition dates, settlement form and effective law. The GIB guide, checked 2026-10-26, covers 2025 individual investment income, so its publication date alone does not settle a 2026 derivative liability.

Decision boundaries

Use the formula to audit quote consistency and financing assumptions, not to forecast spot. It cannot guarantee execution, credit availability or future replacement value. Decline a model-driven trade if its supposed surplus relies on a borrowing rate the investor cannot lock.

Practice and references

Exercise: spot TRY 25/USD, 90 days; TRY simple 28% actual/360, USD simple 4% actual/360. Calculate the model forward and USD 30,000 payment, then compare a 26.50 offer. Solution: F = 25 × 1.07/1.01 = TRY 26.485149/USD. On USD 30,000 model payment TRY 794,554.46. A 26.50 offer differs by TRY 445.54 before other costs; compare it to the same amount and dates.

Takeaway: Explain why forward points are not a forecast using the actual cash schedule, with every excluded cost and remaining exposure stated.

Reference card: fx-forward. Formula: Simple currency forward price. Glossary: Covered interest comparison, Year fraction. Next lesson: C3T6L3. Topic test.

Sources and verification date (2026-10-26):

Shared reference guide