BPP revision kit Q.39 Nutourne (2)

RRon4y ago

Hi, for this question, please may I ask about the futures and forward.. The 6 month forward is 1.0358, whilst the futures (June) is 1.0369. The unexpired basis is calculated to be 0.0011. The predicted futures rate at the end of May is 1.0369 - 0.0011 = 1.0358 (which is the same as the 6 month forward above). Is this because it's 30 Nov now, and after 6 months (when 6 month forward is used), it is the end of May, which is exactly the same as the month of the predicted futures rate, and that's why the exchange rate (1.0358) is the same? Thank you.

John MoffatTutor4y ago#1

1.0358 as used for the futures is not the exchange rate. It is the lock-in rate which gives the same net result as converting at whatever the exchange rate is on the date of the transaction together with the profit or loss on the futures (as I explain in my lectures). The fact that it happens to be the same as the forward rate is just a coincidence - there is no reason why it should be the same.

RRon4y ago#2

Now I understand. Thank you!

John MoffatTutor4y ago#3

You are welcome.

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