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Mr. John can u tell me that in interest rate hedge when it is mentioned in the question that basis risk is zero than does it mean that we don’t have to subtract basis risk from spot price to predict future close out rate because basis risk is zero?
It could mean that, but I would need to see the precise wording because what it probably means is that the basis changes linearly. (The basis risk is that in practice it probably will not change precisely linearly).
In the question the transaction date was September and the contract was also getting matured at September and it was written that basis risk is zero so does.it mean that we won’t subtract any basis risk to predict future close put rate?
I am sorry, but without intending being to be rude to you, you really cannot expect me to comment without seeing the whole question (which I have not done).
Regardless of what you were expected to have done – whether you were right or wrong – it would only be one mark anyway. The marks are for each individual step in your arithmetic and so even if you did get one part wrong you would still get the rest of the marks if you were doing the right thing using whatever figure you got.
The exam is over now, and what will be will be – forget about it 🙂
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