Dear Naresh,
If I am booking a forward contract at INR57 but I am prematurely cancelling the contract at INR56, then my exchange gain or loss should come from the original contract and not at the spot rate on the date of cancellation.
In this case, it will be a loss of INR 1. But suppose the exchange rate on the cancellation date is INR59, then the system will post the gain of INR 2, which is not correct as the contract was booked at INR57.
If i do a cash settlement it works this way. But if I do a premature settlement the system calculates at the spot rate on cancellation date. why there is a difference here?
Thanks,
Kamal.