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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Currency futures
Good day Sir,
You have stated in your lectures that there will only be a perfect hedge if the basis remains the same. I understand that, but then won’t the basis at some point have to fall to zero because otherwise how will the spot and the futures rate be the same at the end of the future? And because the basis will HAVE TO change, is it virtually imposible to get a perfect hedge?
Thanks
That is true!
However we can though forecast the eventual net outcome (the lock-in rate) if we assume that the basis falls linearly (which of course does not have to be the case in practice).