rand0m Wrote: ------------------------------------------------------- > i am fine with F = S*e^(rd-rf)*t, it’s simply IRP > > it’s different from Fo=S*e^(rd-rf)*t - (rd - r > domistic rf - r foreign) which you posted earlier. I se where confusion is. i ment to say that Fo=So*e^(rd-rf)*t not just ‘S’ Fo is future price at to, so once you enter future contract it becomes the strike price
kid, i think you have some mental block here. ask youself a question “a $100 investment has payoff $10 in one year, what’s the rate of return” it’s 10%, right? would you arguge that, no, it has to be discounted by 5% for risk-free. i dont think you will.
ok so lets say you invest 100 and in a year you will get 10 and a 100, but then you decided you want to sell this right to receive 10 and 100, how much would you sell it for?
then you are not talking about rate of return. you are talking about hedging. regardless what one has done in whole process, he ends up at time T with addtional F(T) - F(0) with his initial commitment of F(0). so, his rate of return is still (Ft - F0) / F0. that’s what cfai is trying to say, plain and simple.
I see your point rand0m. Thanks
Ok now that we’ve got that cleared up, any insights into the 700 pairs of shoes?
shoes are commodity products and they are storable, therefore your wife is purchasing shoes as an inflation hedge. it just makes sense really.
OK, I think I have some insight on the footwear issues. 1) Women like feeling that their feet are pretty (and admiring a woman’s feet is actually a fairly “safe” way of admiring her body in public, since it’s non-threatening). And over the years, I’ve learned to appreciate this in women, too. 2) Women also like to be comfortable when walking. 3) The “pretty” shoes aren’t often comfortable, so every time your wife buys a shoe, she’s either hoping that it’s really pretty or really comfortable. It almost never happens that she’ll get both, but she keeps trying in the hope that something will work… in your case… 700 times so far. 4) This is mucked up further by the fact that fashions change, so if she does eventually find a shoe with good “comfort adjusted pretty-ness”, the fashion changes, and she needs to go out and try again. 5) Finally, I have it on record from an actual woman that many women like to buy shoes because they don’t have to get undressed to try them on. Therefore it’s easier to find something they like that makes them feel pretty or comfortable (whichever is the priority at the moment). (ok, I’m writing this just for fun; I’m a man, so I don’t really claim to understand women… I just like them)
I like my answer better bchadwick. yours just makes to much sense.