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Hi John,
You’re kindly asked to clarify the following words.
They were used by the previous examiner, though let’s prepare for surprises.1) Question Phobos December 2008: the prices of interest rate futures are marked as OPEN and SETTLEMENT. How should we work with them. Which one to use for Sell futures and which one to use for Buy futures? Is there a general rule?
2) Question Asteriod Systems June 2008:
“Closing mid point”; “Change on day”; “Bid/offer spread”; “Days mid high/low”; “One month Rate, annual”; “Three month Rate, annual”;
As per the answer, one should use Closing mid-point with Bid/offer spread (curiosly combined).
One month / three month – materials for FWD evaluation.
Should I learn more about these figures & words?
If so, please write a brief comment thereon.Thank you in advance.
As you have written, both these questions were set by the previous examiner – I will be astonished if the current examiner uses these words (he has himself set questions on futures etc. and has avoided this confusion completely).
However…
(1) When futures prices are quoted in the newspapers, they quote the price that they were at the start of the day (the ‘open’ price) and also the price at which deals that day were settled (the ‘settlement’ price). (It is so investors can see how they have moved).
For what we do, the open price is irrelevant – it is the settlement price that we use (whether we are buying or selling) – it is effectively the price of the future as of ‘today’.(2) Yes – what you have written about them is correct.
(However, I repeat, I really will be astonished if the current examiner tries to confuse ever with all of these words 🙂 )
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