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Comments

  1. Hi John,

    For example 11 (say in the real exam scenario), will I score any extra marks if I do the following format?

    – Sell Pound Futures
    – Price 1.4840 – End September 2004
    – Tick value $6.25
    – No of contract: 5 [workings below ($500,000 / 1.4840) / GBP 62500]

    In case of indicating “Sell Pound Future” is to remind myself for Sell high 1.4840, and buy back low 1.4799 for profit, make sure my tireness doesn’t cause me to do the opposite (Loss) for a Buy Pound scenario

    Thanks

  2. Hi Sir ,

    Can basis risk be negative ?
    Here in the above example , spot price is greater than future price and hence basis is positive .
    In few exam questions future price is higher than spot price , so that means basis will be negative . Is this logic applicable to all questions regardless or receipt or payment ?

    • Yes – although I don’t really like to think of it as being negative even though arithmetically I suppose it is. But more importantly the futures price can be higher or lower than the spot rate and therefore it will always be higher or lower as the difference approaches towards zero.

  3. Good day. Thanks for the lecture. On the e.g. 11. I do not understand why you are deducting the 1.4799 from 1.4840 to calculate the gain on the futures. In the last 2 previous examples we deducted the sell was the closing future price and the buy the future price now.

    • In example 9, the underlying transaction is selling $’s because they are receiving $’s. In example 11 the underlying transaction is buying $’s because they are paying $’s.

      We buy or sell futures at the current price depending on whether the underlying transaction involves buying or selling the currency. I do explain this, and also read again note 1 below example 9 in the lecture notes.

  6. Hi Mr Moffat, I may be wrong but from 1 July to 31 August should actually be 2 months? Therefore 0.0200 x 2/3 (rather than 1/3). Then from 31 Aug to 30 Sep will be 1/3. You made the point very clearly, I just want to make sure that this logic is correct. Thanks for the lectures!

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