# forward price/value on foreign currency

The US risk-free rate is 2.96%, the Japanese Yen risk-free rate is 1.00%, and the spot exchange rate between the US and Japan is .00757 per Yen. Both rates are continuously compounded. The price of a 180-day forward contract on the Yen and the value of the forward position 90 days into the contract when the spot rate is .00797 are closest to: Forward Price/ Value After 90 Days A: .00764 / .00037 B: .00764 / .00212 C: .00750 / .00212

1. find the price straight from the continuous pricing formula. 2) Do the same for day 90 and find the price of the contract on that day. 3) The value would be the difference between the two discounted for 90 days.

I get A. Are you trying to make me study derivs again next? I made a conscious decision to do PM before derivs for this sort of reason- these formulas drive me crazy to remember them offhand. I just cheated and looked at the formula. Hopefully I didn’t from there go and F up the stupid math.

I think it’s A too 0.00764309855-0.00362704079

and for my math i did 0.00757 x e^ (0.0296 - 0.01) x 180/360 = 0.007645 second part 0.00797/1.01^(90/360) - 0.00764/1.0296^(90/360) = 0.000366 note, i used the 0.00764 as per their 1st part answer and not the 0.007645 b/c it got me to a number a bit more off vs the answers above, but yeah, that’s how i got mine. hopefully this isn’t sneaky in any way and that’s right. i will do derivs i think last- PM then FI then derivs for this kid. derivs are tough to really nail down but once you start to nail them, it’s a good area to be in. i forgot how to do most of the stuff from last year, but i’m hoping that it comes back to me like riding a bike. swaps, bike riding, hopefully similar.

forwards do you use 360 or 365 days in the T calc stuff? i can’t remember. ah derivs, it’s been so long.

It’s been a long for me to banni. I just solved it intuitively like Dreary. And now looking at your solution. I think, I just missed the continuously compounded annually thingy.

A is indeed that answer. good job gents. these are tricky for me. i am having a hard time understanding these types of questions and the other FRA question on this post. i will post the math of this question if anyone wants to see it.

F= Bannis got this right and i dont wanna re type it Value in 90 days with 180-90= 90 days remaining is: [.00757/ e .01x (90/365)]- [(.00764/e .0296 x (90/365)]= .00037

so it is 365 for futures then? i can never remember- there are some that use a 360 calendar day year and some 365. normally the answers don’t nitpick to the point where it matters, but is that the answer in schweser or CFAI or whatever- 365 as the calendar days? i’ll get back to derivs eventually. going to hammer PM over the long weekend and see if i can’t get through most of it.