New answers tagged

3

I think you're arriving at a value for a swap using 2 different expressions of the same thing because FX forward prices are calculated using spot rates and adding or subtracting forward points. The forward points for a currency pair express interest rate differentials between the 2 currencies in the pair. I think your question then moves from arriving at a ...


1

Sounds to me like you're looking for something like the USD index, see https://en.m.wikipedia.org/wiki/U.S._Dollar_Index As for a common exchange rate, sounds to me like you're looking for a "risk" currency which is the currency into which, if you managed FX inventories, you'd convert your trade flows. In other words using USD as a risk currency then you ...


2

The formula $F^X(t,T) = E_t^d\left(X_T \right)$, under the domestic risk-neutral measure, is problematic. Note that, at time $t$, the forward exchange rate $F^X(t,T)$, for maturity $T$, is the exchange rate such that the payoff $X_T-F^X(t,T)$ has a zero value at $t$. That is, \begin{align*} B_t^d E_d\left(\frac{X_T-F^X(t,T)}{B_T^d} \mid \mathcal{F}_t\right)=...


2

I think you should look at it the other way around. Let $X_t$ denote the FOR/DOM spot exchange rate, i.e. 1 unit of foreign currency = $X_t$ units of domestic currency at time $t$. The FX forward rate $F^X(t,T)$ is defined as $$ F^X(t,T) = X_t \frac{B_f(t,T)}{B_d(t,T)} $$ by basence of arbitrage opportunity. To understand this, consider the following ...



Top 50 recent answers are included