Consider a forward contract on foreign currency with initial forward price F0 and maturity T.

Denote the domestic risk-free rate by r and the foreign risk-free rate by rf. Both rates are

continuously compounded. Using the risk-neutral valuation principle (slide 15 of L4),

demonstrate that the value of this forward contract (long position) at time t is given by:

Vt(F0) = (Ft F0)e-r(T-t), where 0 < t < T