http://www.investopedia.com/articles/forex/08/interes-rate-parity.asp

Investopedia gives that F = S (1+if)/(1+id)

Schweser gives F=S (1+id)/(1+if)

I am confused what’s domestic what’s foriegn.

I remember I did some question before where domestic actually means where I invested (so foreign asset) I mean come on, can any one clear this for me?

nworst
April 26, 2013, 2:55am
#2
it depends on your quote of exchange rate

if S quoted as DC/FC

let’s use F=S (1+id)/(1+if)

cpk123
April 26, 2013, 2:56am
#3
instead of looking at it as domestic foreign … I look at it this way:

Say you are given a USD/EUR exchange rate.

My formula translates as:

F in USD/EUR = S in USD/EUR * (1+rusd) / (1+reur)

based on this – the only difference between what investopedia & Schweser are showing F and S are FC/DC in Investopedia while it is DC/FC in Schweser.

If you remember that the domestic currency grows at the domestic risk-free rate and the foreign currency grows at the foreign risk-free rate, you’ll always do it correctly: USD grows at the USD rate, EUR grows at the EUR rate, JPY grows at the JPY rate, and so on.

Also, whenever you’re writing an exchange rate, always – _ always! _ – write both currencies: numerator and denominator; you won’t make a mistake.

2004028:

Good advice yall.

Where in Canada to they say, “y’all”? I arrived in Toronto – excuse me: T’ron’o – today and will be here through Wednesday; nobody here says, “y’all”.

I was consulting in Charlottte, NC for 16 months: that’s where you hear, “y’all”.

Also, note that “y’all” is singular; “all y’all” is plural.

The top line is where you invested. The denominator is what you passed up on (typically back home). Think of it like that.

Don’t waste time getting confused on DC and FC.