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FX forward brainteaser, part 1 Let x t be the euro dollar exchange rate ( in dollars per euro ) at time t , and
FX forward brainteaser, part
Let be the euro dollar exchange rate in dollars per euro at time and suppose
a Calculate Find in terms of and the value of such that
where is the forward euro dollar FX rate see
Question
b Let be the dollar euro exchange rate in euro per dollar Find the distribution
of and calculate Hint Lengthy calculations are not required.
For what value of does tilde where tilde is the forward dollar
euro FX rate?
c What condition has to be satisfied such that both and
tilde What does this imply in practice?
d Suppose that Show that for the value of found in a
if and only if and
Note Does the lack of symmetry in results c and d trouble you?
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