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Good day Sir,
Am struggling with CMC question when calculating the futures price on day of transaction. Based on my understanding this is my working which is contradicting to the answer in the kit.
1 month 4 months
Spot 1.0635 1.0677
Futures 1.0659 1.0685
basis 0.0024 0.0008Am getting 1.0685 as futures price in 4 months time when i add 0.0008 to spot rate in 4 months time. where am i going wrong?
and is there a scenario where we can use lock in rates instead of how i have calculated the futures price?
We do not know the spot rate in 4 months time (you cannot assume that it will be equal to the 4 month forward rate) and therefore we need to use the lock-in rate.
The lock-in rate is the current spot rate of 1.0647, plus the basis of 4/6 (1.0659 – 1.0647), which gives a lock in rate of 1.0651.
You can find lectures working through the whole of this question linked from the following page:
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