Hi i had a doubt regarding the qn forngoch co , the normal formula to calculate lock in rate is , spot – futures to get the basis of the current month . i did have a doubt while solving frongoch i got the unexpired basis as negative , so if the unexpired basis is negative to do lock in rate do we put . Future price +(-unexpired basis)?
Yes. The spot rate and the futures price will get closer together, but whichever is currently higher will always be higher, and the ‘lock-in’ rate will always be between the two 🙂