FORMULA SHEET

Direct and indirect rate

S (e/) =

1
S (/e)

bid and ask prices

S b (e/) =

1
1
and S a (e/) = b
S a (/e)
S (/e)

Cross exchange rate

S (e/) =

S ($/)
S (e/$)
=
= S ($/) S (e/$)
S ($/e)
S (/$)

% per annum forward premium or discount of an N day forward rate


 

F ($/) S($/)
360
f p($/) =

100%
S($/)
N days
Forward Cross Exchange Rates
FN (j/k) =

FN (j/$)
FN ($/k)
=
FN ($/j)
FN (k/$)

Interest rate parity

F ($/e)
1 + i$
F S
=
or i$ ie
= fp
1 + ie
S($/e)
S
Absolute purchasing power parity
S ($/e) =

P$
Pe

Relative purchasing power parity

E (S ($/e))
1 + $
=
or E (e) $ e
S ($/e)
1 + e
Fisher effect
1 + i$ = (1 + $ ) E(1 + $ )
1 + i$
1 + $
=
or $ e i$ ie
1 + ie
1 + e
International Fisher effect

E (S($/e))
1 + i$
=
or i$ ie E (e)
1 + ie
S($/e)

Forward expectation parity

E (e) =
Forward rate PPP

E (S) S
F S
=
= fp
S
S

F ($/e)
1 + $
=
or f p $ e
S ($/e)
1 + e