currency-08

currency-08 - Foreign Currency Futures Currency Futures...

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Foreign Currency Futures
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Currency Futures Quotations
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Foreign Currency Futures Interest rate parity : foreign exchange rates  will adjust to ensure that a trader will  obtain the same rate of return by investing  in any risk-free instrument in any country,  provided the proceeds are converted back  to the home currency through a forward  contract written at the outset of the  transaction.
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Interest rate parity - example
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Interest rate parity - example After looking at this information what would you  do with your money? Since interest rates in Germany are much  higher than in the US, why not convert dollars  into Marks, earn interest on the Mark and  convert back to dollars at a known rate? Would you make more money than investing in  US treasuries? Let’s check.
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Interest rate parity - example Important to realize that in the book  example: the interest rates r, are the  effective annual compounded rates  (compounding continuously is included). Example: i is the simple annual interest  rate which when continuously  compounded yields: r = 0.2 = e i - 1 i = ln(1.2) = 0.18232
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Where  is the continuously compounded  annual effective rate.  And  is the simple annual rate. So that i is: 
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currency-08 - Foreign Currency Futures Currency Futures...

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