[snake681218]

for a second thought, maybe “basis” is different from “basis risk”?

[snake681218]

Hi, Sir:

If the question says: “you may assume that basis diminishes to zero at contract maturity at a constant rate over time and that time intervals can be counted in months”,

what does it mean? does it mean basis risk decreases linearly up to the day of the future? (it seems that it is the assumption of the question, because the answer did not assume same spot rate on the date of the transaction)

or does it mean the basis risk is zero at the time the contracts are closed out? ( my understanding) .

Pls advise, thanks

[snake681218]

Hi, tutor:

Follwoing your answer to the above question (you say that there is a good argument for using the lock-in rate), can you clarify
1) how can we estimate the lock-in rate?
2) if we are asked to compare future hedging with forward rate and option hedging, can we just use the estimated lock-in rate to make the comparison? (I mean instead of calculating and comparing the total receipts of the company )

Thanks a lot, waiting for your clarification.

[snake681218]

Thanks, pretty clear explanation.

[snake681218]

Thank you so much! Your clarification is clear and easy to understand, really valuable for the self-learners

[snake681218]

Thank you so much! You really help a lot.

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