Several years ago, when the Deutsche mark and French franc still existed, the yield curves were as follows:
$$\begin{array} { l c c c }
\text { Maturity } & \text { US\$\% } & \text { DM\% } & \text { FF\% } \
\hline 1 \text { manth } & 2.10 & 8.00 & 7.00 \
6 \text { manths } & 2.50 & 7.75 & 7.15 \
1 \text { year } & 3.00 & 7.00 & 7.30 \
2 \text { years } & 3.50 & 6.90 & 7.50 \
5 \text { years } & 4.00 & 6.80 & 7.60 \
\text { 10 years } & 4.25 & 6.75 & 7.70 \
\text { Spot Exchange } & & & \
\text { Rate (per USS) } & & 1.80 & 5.50
\end{array}$$ Calculate the implied forward exchange rates, assuming that the interest rates are international money rates (linear convention) for maturities of less than a year and yields on zero-coupon bonds (European convention) for maturities of more than one year.

Question

Several years ago, when the Deutsche mark and French franc still existed, the yield curves were as follows:
 $$\begin{array} { l c c c } 
\text { Maturity } & \text { US\$\% } & \text { DM\% } & \text { FF\% } \
\hline 1 \text { manth } & 2.10 & 8.00 & 7.00 \
6 \text { manths } & 2.50 & 7.75 & 7.15 \
1 \text { year } & 3.00 & 7.00 & 7.30 \
2 \text { years } & 3.50 & 6.90 & 7.50 \
5 \text { years } & 4.00 & 6.80 & 7.60 \
\text { 10 years } & 4.25 & 6.75 & 7.70 \
\text { Spot Exchange } & & & \
\text { Rate (per USS) } & & 1.80 & 5.50
\end{array}$$ Calculate the implied forward exchange rates, assuming that the interest rates are international money rates (linear convention) for maturities of less than a year and yields on zero-coupon bonds (European convention) for maturities of more than one year.

Quizplus · Accepted Answer

The Answer of Several years ago, when the Deutsche mark and French franc still existed, the yield curves were as follows:
 $$\begin{array} { l c c c } 
\text { Maturity } & \text { US\$\% } & \text { DM\% } & \text { FF\% } \
\hline 1 \text { manth } & 2.10 & 8.00 & 7.00 \
6 \text { manths } & 2.50 & 7.75 & 7.15 \
1 \text { year } & 3.00 & 7.00 & 7.30 \
2 \text { years } & 3.50 & 6.90 & 7.50 \
5 \text { years } & 4.00 & 6.80 & 7.60 \
\text { 10 years } & 4.25 & 6.75 & 7.70 \
\text { Spot Exchange } & & & \
\text { Rate (per USS) } & & 1.80 & 5.50
\end{array}$$ Calculate the implied forward exchange rates, assuming that the interest rates are international money rates (linear convention) for maturities of less than a year and yields on zero-coupon bonds (European convention) for maturities of more than one year.

Several Years Ago, When the Deutsche Mark and French Franc