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June 10, 2020 at 3:09 pm
Thank you Mr John for your lectures. Your explanations drives the point home
June 2, 2020 at 6:15 pm
this is great lecture
February 12, 2020 at 7:15 pm
Love the way you explain with practical examples, and always have an answer for WHY
January 23, 2020 at 10:22 am
I have not been entirely sure what the mechanism and the real reason behind the movements (interest up and futures down and vice versa). It might have been mentioned in the lecture – sorry if I missed it. But I have found a clear explanation:
“Effect of Interest Income The futures price decreases when there is a known interest income because the long side buying the futures does not own the asset and, thus, loses the interest benefit. Otherwise, the buyer would get interest if he or she owned the asset.”
John Moffat says
May 27, 2019 at 12:50 pm
It is the missing figure.
If they did their own borrowing they would be paying 10%. Swapping gives a saving of 1/2 x 1.5% = 0.75%.
Therefore the settling up must end up with X paying 10 – 0.75 = 9.25%
Swapping means they will be paying 12%, so they settle up by Y paying X 9.25% which means X ends up paying 12 – 9.25 = 2.75%.
Remember, however, that as I say in the lectures you cannot be asked to do this calculation in Paper FM – only to explain the idea behind swapping.
May 26, 2019 at 3:53 pm
hello,how did you get that 2.75 y pay to x from?
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