Estimating futures prices

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May 1, 2018 at 6:56 pm #449714
mjibola
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In exchange risk management, is it a rule to use the diff between the mid market and futures price to estimate the basis risk?

What if there’s enough information to use the ppp formula to forecast the future exchange rate and then determine the basis risk?
May 2, 2018 at 5:49 am #449751
John Moffat
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It really depends on the question, but using PPP to forecast the exchange rate is not normally applicable when using futures in the exam – it is only a forecast and in practice is unlikely to give the actual future spot rate.
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