Suppose the current USD/euro exchange rate is 1.2000 dollars per euro. The six-month forward exchange rate is 1.1950. The six-month USD interest rate is 1% per annum continuously compounded. Estimate the six-month euro interest rate. I am using this formula F=S*e^(rs-rs)*t 1.1950=1.2*e^(0.01-rf)*0.5 (Its for a Derivatives class, am I right?)
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Suppose the current USD/euro exchange rate is 1.2000 dollars per euro. The six-month forward exchange rate is 1.1950. The six-month USD interest rate is 1% per annum continuously compounded. Estimate the six-month euro interest rate.
I am using this formula F=S*e^(rs-rs)*t
1.1950=1.2*e^(0.01-rf)*0.5
(Its for a Derivatives class, am I right?)
Exchange rate (ER) is a value at which two different currencies are exchanged or traded. To estimate the requirement of funds in the future in foreign currency, forward exchange rates are computed.
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- The current USD/EUR exchange rate is [de] dollar per euro. The one-year forward exchange rate is [fe]. The one-year USD interest rate is [rus]% p.a. semiannually compounded. Estimate the one-year EUR interest rate (p.a. semiannually compounded, stated in percent). Inputs: de, fe, rus = 1.85, 1.75, 1.31 Tip: Use the CIPSuppose the current USD/EUR spot exchange rate is 1.20$/ €. At the same the euro interest rate amount to 10% per year while the dollar interest rate is 0% per year. a. What is the no-arbitrage one-year USD/EUR forward exchange? b. Suppose the one-year USD/EUR forward exchange was 1.25$/ €. How could you make money from this situation? 4Suppose that the current spot exchange rate is €1.50/₤ and the one-year forward exchange rate is €1.60/₤. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount, i.e., ₤666,667, at the current spot exchange rate. Show how you can realize a guaranteed profit from covered interest arbitrage. Assume that you are a euro-based investor. Also determine the size of the arbitrage profit.
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