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Dear Sir, may i know why we put “(6/7 months) to calculate for the predicted rate at the end of May?
What we are calculating is the lock-in rate.
We are using June futures, and from ‘now’ (30 November) until the end of the future (30 June) is 7 months.
The transaction is taking place on 31 May, which is 6 months from now.Therefore the lock in rate is the current spot rate + 6/7 of the current basis.
I do explain what the lock-in rate is, and how to calculate it, in my free lectures on foreign exchange risk.
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