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Its April 20… making payment in 2 months time euro/£…contract is in £.. so buy £ futures and sell later?
Spot 1.439 – 1.465
2 month forward 1.433 – 1.459
June Futures – 0.6964I have assumed 2 months forward rate to be spot in 2 months time. Am I right to assume this please?
If so then futures rate will be ( 20 April to 30th June = 71 days) 20 june to 30th June =10 days
now 20 June End of June
Futures 0.6964 *0.6980* 0
Spot 0.6949 0.6978 0
Basis 0.0015 0.0002 0does this look right please?
The solution has just used 0.6978 as the June 20 futures
It is hard for me to give you a proper answer without seeing the question that you are referring to.
If we are told what the spot rate is in 2 months time, then you use it (the way that you have done).
If you are not told the spot rate in 2 months time, then more usually we would calculate the lock-in rate (from the existing futures and spot rate, together with the change in the basis) rather than assume that the spot rate will be equal to the forward rate (because there is no reason why it should equal the forward rate).
Again, it depends so much on what the question requires and the information given.
(If you are not sure what I am meaning by the ‘lock-in rate’ then do watch my lectures on this.)
Thanks for this John. The question did not state the spot in 2 months.
Going by the figures above, lock-in rate
change in basis = 0.0013
Add to spot =0.6964
= 0.6977
Is this right sir?Thanks
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