1. Profile photo of questforknowledge says

    hi John i have some issues with the arithmetic here. in calculating tha future price from basis you subtracted spot rate from future price (1.4900-1.5100) to -0.0200, suppose i subracted future price from spot rate i will get 0.0200 instead. on the the date of the transaction the basis will have fallen to .0067 , to get the future price should i add this .0067 to the mid market rate (1.5250 +1.5370) = 1.531 or should i subtract it. in your lecture its subtracted. my question may sound stupid but but i have been having little problems like this and subtract or adding will give a different future price which will definitely determine if i exercise an option or allow it to lapse
    thank you

    • Profile photo of John Moffat says

      Mike does not teach P4!! :-)

      The currency of the profit or loss on the future is always the opposite currency to that in which the contract size is quoted in.

      So……if we are looking at £/$ futures, then if the contract size is quoted in £’s then the profit/loss will be in $’s. If the contract size was quoted in $’s then the profit/loss would be in £’s.

      (And I guess you are happy with the fact that if the profit/loss is not in our own currency then we need to convert it at spot on that date)

      • Profile photo of questforknowledge says

        thank you John and excuse me i meant to write John and not Mike. Just that i have been used to asking questions to mike to. That is quite easy to remember in the exam hall

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