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

Question

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?

David · Accepted Answer

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.

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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