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?)

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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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?)

Expert Solution
Step 1

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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