Suppose the current exchange rate between Germany and Japan is 0.02 =C/¥. The euro-denominated annual continuously compounded risk-free rate is 4% and the yen-denominated annual continuously...

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Suppose the current exchange rate between Germany and Japan is 0.02 =C/¥. The euro-denominated annual continuously compounded risk-free rate is 4% and the yen-denominated annual continuously compounded risk-free rate is 1%. What are the 6-month euro/yen and yen/euro forward prices?




Answered Same DayDec 25, 2021

Answer To: Suppose the current exchange rate between Germany and Japan is 0.02 =C/¥. The euro-denominated...

David answered on Dec 25 2021
122 Votes
Given :
Current exchange rate, =0.02 /
Euro-denominated risk-free rate , Er =4% per annum

Yen- denominated risk-free rate, Yr =1% per annum
Following is the formula used for currency forward:
( )
0. 0
h fr r
TF x e

 ……………………….(1)
Where,.
0.TF is the forward price.
0x is the current exchange rate.
e is the base...
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