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There are two currencies: domestic and foreign. Let r_d and r_f be the continuous risk free rates of return in each country (their bond yields;
There are two currencies: domestic and foreign. Let r_d and r_f be the continuous risk free rates of return in each country (their bond yields; f for foreign and d for domestic). Suppose that x_0 is the amount of domestic currency needed at time zero to purchase one unit of foreign currency. Find the forward price (in domestic currency) to purchase one unit of the foreign currency at time T. Prove this result with arbitrage
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