interest-rate-parity

  1. Nicole Seaman

    YouTube T3-21b: Interest rate parity: visual/mathematical

    Interest rate parity (IRP) anticipates depreciation (appreciation) by the currency with the higher (lower) interest rate to maintain equilibrium (i.e., investor indifference). In equilibrium, 100*exp[r(b)*T]*F(0) = 100*S(0)*exp[r(q)*T] where r(b) is the base currency's interest rate and r(q) is...
  2. Nicole Seaman

    YouTube T3-21: Interest rate parity applies cost of carry model

    Interest rate parity applies the cost of carry (COC) model to enforce an equilibrium (indifference) between two choices: 1. translate the 1,000 EURs immediately at the spot FX rate, and subsequently grow them at the USD risk-free rate for two years; or 2. hold the 1,000 EURs, grow them at the...
  3. Nicole Seaman

    P1.T3.717. Foreign exchange (FX) forwards and more cost of carry theory (Hull Chapter 5)

    Learning objectives: Calculate a forward foreign exchange rate using the interest rate parity relationship. Define income, storage costs, and convenience yield. Calculate the futures price on commodities incorporating income/storage costs and/or convenience yields. Questions: 717.1. Near the...
    • Nicole Seaman
    • Thread
    • convenience-yield cost-of-carry foreign-exchange-forwards futures-price income interest-rate-parity storage-costs
    • Replies: 0
    • Forum: FRM® Practice Questions
  4. A

    GARP.FRM.PQ.P1 Interest rate parity (garp13-p1-6)

    hi David Please can you explain when do we use the following formulas for interest rate parity : Ft =S0 * e(r-rf)T and Forward = Spot x (1+domestic interest rate)/(1+foreign interest rate) I am very confused as some questions use the first and some use the second and the results are...
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