Sharif Haason

FX Parity and Forward Trading

Sharif Haason 1 min read Study note

Week 3 — 10 February 2025

The syllabus records this class as “Stochastic Processes — Intro to FX: FX parity; Spot and Forward trading; FX conventions.” The source document does not contain a prose derivation of covered interest parity, so I am keeping the implementation notes and the topic record rather than filling that gap with a generated explanation.

Notes on inputs

The workbook notes record the conventions used by the later pricing functions:

  • Days-to-time conversion uses a 365-day year.
    1. is the forward FX rate, not spot FX.
  • Contract types are (C) (call), (P) (put), (F) (forward), (D) (deposit in local currency, usually USD), and (M) (deposit in the foreign currency, usually MXN).
  • (DiscRate) is the discounting-currency rate; (ExtRate) is the foreign-currency rate.
  • Prices are returned in USD. Notionals are entered in MXN except for a USD deposit ((D)).

The quote direction and domestic/foreign labels therefore need to be fixed before comparing a spot, forward, or parity calculation.

Source boundary

The personal course export contains the syllabus and these workbook conventions, but no worked parity example. This article intentionally marks that source boundary instead of presenting an LLM-generated derivation as class notes.

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