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On the futures calculation,why is the period to expiry of basis 2 months instead of one month?I understand that the futures expiry date is 30th june.in short,why do they use the fraction of 2/5 instead of 1/5 in the answer?thanks in advance!
‘Now’ is 1 November 2013 and the deposit will be made on 1 February 2014, which is in 3 months time.
They are using March futures (not June futures!!) and March futures expire on 30 June which is in 5 months time.
Therefore at the date the investment begins there are 2 months unexpired basis, hence the 2/5.
Have you watched my free lectures on the management of interest rate risk where I explain in detail how futures ‘work’?
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