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In example 11 of chapter 18, there is an adjustment to mid point of 12 Sep to get the futures price, pls help me as i can not figure out why we have to use 18/102 in order to arrive the difference between mid point and futures. Many thanks.
The reason is that we assume that the difference falls linearly between “now” (20 June in this example) and the last day of the future (30 September in this example).
Between 20 June and 30 September there are 102 days (and so we assume that the difference is falling by 1/102 each day)
We want to know the price of the futures at the date of the transaction because this is when we will finish the futures deal (in this example 12 September).
On 12 September there are 18 days left until the last day of the future (30 September) and so we assume that the difference will have fallen to 18/102 times the difference that exists “now”.
Hope that makes sense 🙂
That is clear like crystal.
I knew why I came up with the different number, I used 30 day for every month that made my total day was 100 days instead of 102 days for period from 20 Jun to 30 Sep.
Thanks so much
In part 2 of forex risk management, example 1.a, please advise that I have to use the spot rate of 30.06 (1.518) to covert 2m received.
thanks and regards
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