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September 3, 2017 at 11:35 am
Why isn’t the futures price 100%-9% =91 ??
John Moffat says
September 3, 2017 at 2:39 pm
Because of the basis. Futures prices and the equivalent interest rate are different – the difference is the basis and we assume this difference falls linearly to zero over the life of the future (exactly the same as happens with currency futures – I assume you did work through the lectures on managing foreign exchange risk first).
Read what is written under ‘additional points’ immediately about the example in the lecture notes.
August 30, 2016 at 9:05 am
never understood where the 400 came from and why was it divided.. please help asap
August 30, 2016 at 2:24 pm
Have you watched this and the earlier lectures on futures, because I do explain!
We divide by 100 because the difference in the futures prices is effectively an annual %. We divide by 4 because they are three month futures and three months is 1/4 of a year.
We always divide by 400 as a result.
July 30, 2016 at 3:50 pm
Why do we use the libor rates of 6 % and 9 % to estimate the futures price ? Why not use the interest rates of 7 % and 10 % ?
And thanks for your lectures. These are really helping me a lot
July 31, 2016 at 8:35 am
Because according to the question the current LIBOR is 6% and part (a) of the question says to assume that LIBOR has risen to 9%.
Have you downloaded the free lecture notes that are needed to watch the lectures?
May 26, 2016 at 2:23 pm
i am not seeing this question in the notes… do i have the wrong notes??
May 26, 2016 at 5:12 pm
The page number is wrong.
It is on page 105 of the current lecture notes.
May 9, 2016 at 2:59 pm
Dear Sir, to calculate the unexpired basis in interest rate futures we perform: future price- interest rate. But in currency futures is it the other way around? (Spot- Future price) ?
May 9, 2016 at 3:55 pm
It doesn’t matter which you take from the other!!
All that matters is that if the current futures price is lower than the current spot, then it will stay lower than spot. If it is higher then it will stay higher.
November 29, 2014 at 6:15 pm
Life saver !!!!
November 20, 2013 at 11:05 pm
Please can someone help me?
From the Link below
Global Pilot paper – from June 2013 exams
Question 2 – Alecto Co.
In the solution, when calculating the profit/loss of the futures deals for both interest rate futures and options on interest rate futures, the calculation was not divided by 400 as explained by the tutor here, can you please explain why this was the case?
November 21, 2013 at 5:03 am
The answer has used ticks, where the 400 has already been taken into account. You do not need to use ticks, but it gives the same answer either way.
One tick is a change of 0.01, so the profit or loss on one contract changing by 0.01 is 1M x 0.01 / 400 = $25
August 19, 2013 at 8:29 am
Thanks . Very Nice. God bless.
October 14, 2012 at 4:45 pm
On Kei CHUNG says
September 29, 2012 at 3:43 pm
sorry I am dumb. Can anyone tell me how the 94 future price on 1 Nov is being calculated? Thanks a lot
May 29, 2013 at 6:49 pm
On 1 Nov, the LIBOR is 6%, therefore the future price is 1-6%=94.
April 27, 2012 at 4:13 am
Quite interesting and straight forward.
November 28, 2011 at 6:10 am
May 23, 2011 at 6:37 pm
in this June 2010 Mock they said they would not want the interest receivable to decrease by $2500 from the amount that would be paid on the current interest
May 23, 2011 at 6:32 pm
Can some assist me what will be the Interest Receipt on Futures if Example was to Invest the same amount but the inerest rates Fall by 1% and the Futures price move by 0.85%,this example is similar to one on the Kaplan Mock June 2010 and when i try it am geting a total of$11,000.00 and 80,000.00 giving a total of $91,000.00 instead of $97,000.00 that the solution is giving
May 20, 2011 at 12:28 pm
Please could someone explain what might be the problem, I have not been able to view P4 Lecture 3 on Interest Rate Futures beyond )7:39 minutes. The lecture stops at 07:39min each time i played it where as its total time is 14:46 minutes.
May 20, 2011 at 1:26 pm
Wait few minutes for the lecture to load before you press play
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