ramzes

Dreary wrote:
What he is saying cpk is why when you calculate the forwrd on an asset, you do it like this:
F = S0 * (1+Rf)^T - Dividen(1+Rf)^T, but when you do it with a currency, you do it like:
F = S0$/Y  * (1+Rf$)^T / (1+RfY)^T, assuming $ yen.
The book says you think of interest same way as dividend, which is not easily seen from above.  They are computed in a different way.
I think they are approximately the same, you can think of it like this:
F = S0$/Y  * (1+Rf$)^T - S0 * RfY
So that the futures price of the currency is the spot rate rising at the DC interest rate minus the interest on the foreign currency…i.e., same as you would do with a forward on an asset.