If we are given annual interest rates for a six month currency forward, do we effect the rate by multiplying by .5, or do we raise it ^5? I guess that if the rate is given as compounded we us ^.5, but can we make that assumption either way? I guess same question would apply to multi year forward, is the convention to multiply by the fraction or take the exponent? thx
can you provide an example? I think the basic answer is that it’s compounded to ^ such that r and T both have the same frequency (so if you have a semi-annual pay rate over one year you use r/2 and T*2)