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effective futures rate and expected futures price

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › effective futures rate and expected futures price

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by vdfb.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • January 22, 2024 at 2:18 pm #698845
    vdfb
    Participant
    • Topics: 16
    • Replies: 30
    • ☆

    Hello,
    why is there a difference between effective futures rate and expected futures price?

    I see in some questions to find the effective futures rate we do: opening FUTURE – closing basis

    Some other questions I see: SPOT RATE (+increase predicted) – closing basis.

    Isn’t it better to use the futures rate and add the predicted increase then minus closing basis?

    Because the futures price isn’t really the spot rate + increase…

    I am not sure if my question is very clear…
    I just don’t know when to use which…
    Thanks for the help

    January 22, 2024 at 7:52 pm #698880
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    Have you watched my free lectures on this?

    You can always start with the current futures price of with the current spot rate – the answer will always be the same.

    January 23, 2024 at 7:36 am #698908
    vdfb
    Participant
    • Topics: 16
    • Replies: 30
    • ☆

    Hello
    yes I watched them although I am not sure I understand your answer above..
    spot rate + increase – closing basis is not equal to futures rate + increase – closing basis

    to find the effective futures rate I don’t understand how the spot rate can be used (except in the remaining basis calculation).

    January 23, 2024 at 8:35 am #698914
    vdfb
    Participant
    • Topics: 16
    • Replies: 30
    • ☆

    Nevermind, I think I figured it out. Its because interest rate futures move with the spot rate. Which is not the case of all futures, that is why we see both ways of calculating the effective rate

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘effective futures rate and expected futures price’ is closed to new replies.

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