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I had gone through a question related to interest rate futures where instead of providing the spot futures rate, the question provided details on the basis basis from the futures date.
As we know, futures and spot rate move in linear fashion.
But if we are given that basis on march futures is 44 basis points? How do we know if we are supposed to add to the spot rate or subtract from the spot rate?The spot rate and the futures price will always get closer together and in all exam questions except one this has been sufficient to decide whether to add or subtract.
I am guessing that you are referring to one question where you were told the basis but there was not enough information to know whether to add or subtract. That was a mistake of the examiner in setting the question and you would have got the marks whichever you did (even though, obviously, the final answer would be different).
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