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I was doing a a question on currency futures from my revision kit where I had to estimate the futures price..
I looked back at the answer and instead of using midmarket rate for the spot rate the answer used the buy rate
Can we use both ways when estimating the price of futures…?
Also there was no spot rate given on the date of transaction- so the futures price was missing and the spot rate…
How do I estimate the futures price?In future, if you want me to answer then you must ask in the Ask the ACCA Tutor Forum. This forum is for students to help each other.
In the exam you can use either rate 🙂
If there is no spot rate given on the date of the transaction you can either invent one and still illustrate what happens, otherwise you can calculate the ‘lock-in rate’. Because we can predict what happens to the basis (it falls linearly over the life of the future) we can predict the net effect of converting the transaction at spot and the profit or loss on the futures – we do this by taking the current futures prices and adjusting it by the change in the basis.
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