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Dear Sir,
May you please explain how we calculate the unexpired basis for this question. Why 2/7x 0.56=0.16?
I don’t understand the examiner’s working.
Thanks
Beth
‘Today’ is 1 June 2015. They are using December futures, which expire on 31 December 2015. This is 7 months from today.
The Transaction occurs in 5 months time, and so the futures deal will close in 5 months time. Therefore there is 7 – 5 = 2 unexpired basis.
I do suggest that you watch my free lectures on foreign exchange risk management where I explain all this in detail (with examples).
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