Illustrates formula of Rho for foreign exchange option value

Question

Illustrates the formula of Rho for the foreign exchange option value?

Answer 1

Formula:

ρ = ∂V/∂r.

In practice one frequently uses a complete term structure of interest rates, implies a time-dependent rate r(t). Rho would subsequently be the sensitivity to the level of the rates assuming a parallel move in rates at all times.

Rho can also be sensitivity to dividend yield, or foreign interest rate in a foreign exchange option.