Final Formulas

Law of One Price: P$ * S = P Purchasing Power Parity (PPP): S(/$) = P/P$

Real Effective Exchange Rate (REER): $

$$ *CCEE NR =

Fisher Effect: +++=++= rrrri 1)1)(1( International Fisher Effect: $

2

21 iiSSS = where S1 and S2 are /$

Forward Rate:

+

+=

360*1

360*1

*$

/$/$

Ni

NiSFN or

+

+=

360*1

360*1

*$

Ni

NiSpotFwd

Forward Premium/Discount:

100*360*100*360*$)/(

$)/($)/(vs$ NFwd

FwdSpotNF

FSfN

NN

==

100*360*100*360*)/($

)/($)/($$vs NSpot

SpotFwdNS

SFf NN==

Interest Rate Parity (IRP): )/$()1()1()/$(

$

SiiF +

+= or SpotiiFwd

)1()1(

$

++=

Cross-Exchange Rate: )$(*)

$()

( SSS =

Forward Cross-Exchange Rate: $)/($)/(

)/($)/($)/(

N

N

N

NN F

FFFF ==

Futures Value of short position = - Notional Principal * (Spot Future) Value of long position = Notional Principal * (Spot Future) Options (St = spot price at time of expiry; E = exercise or strike price) Calls: CaT = CeT = Max [St E, 0] Profit for long call: Spot (Strike + Premium) Profit for short call: Premium (Spot Strike) Puts: PaT = PeT = Max [E St, 0] Profit for long put: Strike (Spot + Premium) Profit for short put: Premium (Strike Spot) Present Value (PV)/Future Value (FV) If have PV, FV = PV * (1 + interest rate) If have FV, PV = FV / (1 + interest rate) Cost of Capital

))(1()(VDtk

VEkk deWACC +=

)__()( premiumriskmarketkkkkk rfrfmrfe +=+= where m

jjmj

= Cost of Debt/Equities in Home Currency

)]1)(1[($ skk foreign ++= - 1 where s = change in exchange rate International Portfolio Measures E(rp) = waE(ra) + wbE(rb) abbababbaap wwww 22222 ++= Sharpe Measure:

i

fii

RRSHP

= Treynor Measure: i

fii

RRTRN

=

FuturesOptions (St = spot price at time of expiry; E = exercise or Profit for long put: Strike (Spot + Premium) Profit for shPresent Value (PV)/Future Value (FV)Cost of CapitalCost of Debt/Equities in Home CurrencyInternational Portfolio Measures