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July 27, 2017 at 1:51 pm
This lecture was great. Your lectures are helping me to grasp difficult concepts of P4. But John, I didn’t understand the reason for using 1/3 in future price estimation and the statement that ” in reality, they would be zero, but will not be linear” is still unclear to me. John, could you help me in this area?
John Moffat says
July 27, 2017 at 4:53 pm
We assume that the basis (the difference between spot and future prices) will fall linearly to zero over the life of the future. So we need to count the months – if there are currently three months to the end of the future, and at the date of the transaction there is only one month to the end of the future, then the basis will then be 1/3 of what it is now.
In practice it does not have to fall linearly and so the basis might not be exactly 1/3 of what it is now. That is the basis risk.
October 19, 2016 at 3:14 pm
Thanks, very helpful
The end of the future is nigh! 🙂
October 20, 2016 at 7:49 am
Thank you for the comment 🙂
August 12, 2015 at 2:47 am
US$/£1 CAD/£1 JPY/£1
Spot 1·5938–1·5962 1.5690–1·5710 131·91–133·59
3-month forward 1·5996–1·6037 1·5652–1·5678 129·15–131·05
Kindly show me how to calculate the mid rates for each set?
August 12, 2015 at 8:05 am
You must ask this in the P4 Ask the Tutor Forum – not as a comment on a lecture.
May 6, 2015 at 2:04 pm
Than you John…much clearer now
May 3, 2015 at 10:21 am
Hello sir ,
with reference to P4 june 2014 exam, Question # 1,part (a) answer
the examiner predict 4 month future price by..
(spot rate now + ((6 month future – spot rate now )x4/6)
there is confusion here whether basis is (spot – future price) or ( future – spot price )
please make comment
May 3, 2015 at 10:45 am
What the examiner has done is not correct (even though he has chosen numbers that do end up giving the correct figure).
The correct way is to calculate the lock-in rate in the way he has shown in italics as an alternative.
For more, watch my lecture going through the whole of this question. You can find the link to it on this page: http://opentuition.com/acca/p4/acca-p4-revision/
March 27, 2015 at 7:59 pm
Thank you. You are awesome ????????
March 24, 2015 at 12:00 am
hello can you please explain why the difference between the last day of the future and the spot rate will be the zero ?
March 24, 2015 at 7:12 am
Futures give the right to buy the currency at a fixed price on a future date (even though that is not the way we generally use them).
If you were to buy a future on its last day then automatically you would therefore expect it to be the same as the spot rate because you would be buying the right to buy the currency on the same day.
November 25, 2014 at 11:14 am
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
November 25, 2014 at 11:39 am
The rates will move closer together the nearer it gets to the end of the future.
October 28, 2014 at 5:51 pm
gr8 lecture… u made this whole thing so much easy.. thnx..:)
October 20, 2014 at 4:38 pm
hi Mike, i still have issues on how the currency in which the profit on the future is calculated. is there a way to remember it?
October 20, 2014 at 5:21 pm
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)
October 21, 2014 at 8:59 am
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
August 31, 2013 at 11:11 am
you are doing us a nobel service gentlemen
August 25, 2013 at 6:44 pm
Very Nice Lecture. God bless.
May 21, 2013 at 5:59 am
Thanks for these lectures. They have been very helpful!
gaya s. says
April 6, 2013 at 3:52 pm
Thank you Open Tuition! Lectures really made understanding futures EASY! 🙂
April 23, 2013 at 10:05 am
May 20, 2012 at 7:11 pm
really easy method .. gud lectures
April 15, 2012 at 9:13 pm
thanks, Good lecture
March 19, 2012 at 6:04 am
here i have my answer to question i asked in previous lecture 😛 cool stuff… thumbs up 🙂
March 13, 2012 at 1:44 pm
November 12, 2011 at 3:30 pm
@ nausheenmoeen considering, that all lectures do not play for you, maybe you should come to conclusion, that it is your PC..
as videos play fine
Please visit the support page: http://opentuition.com/support/
November 12, 2011 at 3:09 pm
pls admin help us as u always do this is also not working
December 1, 2011 at 12:31 pm
@nausheenmoeen, Exit all your running torrents, stop all browsing and if u dont have a broadband connection give the video some time ( a couple of minutes perhaps ) to load before playing
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