The relationship between the number of pencils and the number of pens in Sophie’s pencil case can be represented using the ratio
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The no-arbitrage 1-year forward rate in $/€, F($/<span>€) is given by
where S(</span>$/euro) is the spot exchange rate in $/€,
is the interest rate in the US and 
<span> is the exchange rate in the Euro zone.
Thus, given that </span>the <span>spot exchange rate is $1.50/€ and interest rates are 5% apr in the u.s. and 3% apr in the euro zone.
The no-arbitrage 1-year forward rate is given by:
</span>
where S(</span>$/euro) is the spot exchange rate in $/€,
Thus, given that </span>the <span>spot exchange rate is $1.50/€ and interest rates are 5% apr in the u.s. and 3% apr in the euro zone.
The no-arbitrage 1-year forward rate is given by: