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September 24, 2015 at 1:13 pm
@ Sir John, Thank you for great lecture.
I want to ask about Futures price. e.g if you say futures price is 92,
1)is this amount in $ or cents? & that 92 is per contract? (e.g i want to buy two future contracts of $1m at exercise price of 92 each)
2)what will be the difference if i am borrowing in currency other than dollars say yen, does futures price will be derived from the same formula (100 – x%)?
3) Why we always sell futures when we are borrowing and buy futures when depositing? i like to understand the logic behind this?
Thank you once again!
John Moffat says
September 24, 2015 at 1:24 pm
A future price of 92 is not in any currency – it is just another way of quoting 8% interest (100 – 8), and if you borrow money and are quoted a rate of interest then the % itself is not in any currency.
The whole purpose of using futures (as with foreign currency futures as well) is for the gain or loss on the futures deal to ‘cancel’ out the loss of gain on the transaction itself.
If you are borrowing money and the interest goes up, then you are losing out on the loan itself. However if the interest rate goes up, the futures price will fall. So you will make a compensating gain on the futures by selling now, and then buying back later when the price is lower. Vice versa if you are depositing money.
September 26, 2015 at 8:59 am
Thank you Sir,
can we also open our position by buying futures instead of selling futures when borrowing or it has to be selling futures first and buying later to close the position?
September 26, 2015 at 9:33 am
You can do, but it would be stupid thing to do! Because if interest rate go up you would be paying more interest on the borrowing, and at the same time you would make a loss on the futures.
The whole point in trading in futures is for the gain or loss on them to ‘cancel’ the gain or loss on the borrowing itself.
(I am not sure why you have posted a comment about futures under a lecture on options)
September 28, 2015 at 10:11 am
Okay now i got it, thanks very much.
Oh that is a mistake on my part. My apologies 😉
November 20, 2014 at 9:35 am
Are caps long term in nature?
November 20, 2014 at 3:43 pm
No – they are more likely to be short term.
November 27, 2013 at 1:23 am
John you are an amazing gifted tutor you make it all sound very easy, hope in will be both in practice and exam God Bless You am confident for a victory many thanks.
November 20, 2013 at 11:06 pm
Please can someone help me?
From the Link below
Global Pilot paper – from June 2013 exams
Question 2 – Alecto Co.
In the solution, when calculating the profit/loss of the futures deals for both interest rate futures and options on interest rate futures, the calculation was not divided by 400 as explained by the tutor here, can you please explain why this was the case?
November 21, 2013 at 5:04 am
The answer has used ticks, where the 400 has already been taken into account. You do not need to use ticks, but it gives the same answer either way.
One tick is a change of 0.01, so the profit or loss on one contract changing by 0.01 is 1M x 0.01 / 400 = $25
November 21, 2013 at 8:43 am
October 17, 2013 at 10:50 am
Thanks a lot :).
September 25, 2013 at 12:26 pm
Very clear and concise. Thank you so much
August 20, 2013 at 8:09 am
Very nice. God bless
November 13, 2012 at 9:48 am
Not Working. loads first couple of seconds the starts again… Please assist… Critical time… Critical topic!!!
November 13, 2012 at 1:17 pm
restart your router.. seems like a overloaded internet connection at your end
November 1, 2012 at 2:42 pm
i am not able to watch this particular video. Pls chk.
November 1, 2012 at 3:39 pm
@krishnamr007, lecture works fine
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November 1, 2012 at 2:39 pm
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June 8, 2011 at 2:33 am
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