What is the currency of "Transnistria?

Currency rollover interest calculation question?

• I realize the equation is: Contract notional value x (base currency interest rate - quote currency interest rate) / 365 days per year x current base currency rate = daily rollover interest debit/credit But I'm a bit confused on how the "current base currency rate" factors into this a higher level view. For instance if the base currency rate increases the daily rollover obviously decreases and vice versa. Why is does the base currency affect rollover interest rate? ..is my main question. Is it because the interest has to be converted from the base currency to the quote currency so if the quote currency devalues then the interest you receive will lessen?

• Answer:

  Your approach to understanding formulas is wrong. You don't look at the formula and interpret why it ought to be the way it is. You look at the derivation of the formula. In this case you derive that formula by saying that there are two scenarios: a) Deposit your money in basec currency at base currency rates and buy a forward contract b) Convert your money to quote currency and deposit it in quote currency rates At expiration of the forward contract those two have to be equal or there would be an arbitrage. So set them equal and derive the formula...