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Current date- 1 June
Invest on – 30 October for a period of 4months
December futures is at 96.6 ie 3.4%
Current spot rate is 4%
Spot rate on 30 October is not givenDear sir,
What’s the reason behind calculating “lock in rate”? Is it estimating the spot rate on 30 October and what’s the logic behind the calculation?
They calculated it as 100-( 96.6-0.171)= 3.571%IF it is estimating the spot rate on 30 OCT, I did it as 4%+ (-0.6%/7*5) and I got exactly the same answer…Can I do it this way??
Please advise on this…Thanks a lot
The lock-in rate is not estimating the spot rate. It is calculating the net effect of using the actual rate at the date of the transaction and the gain or loss on the futures.
I do explain this in detail in my free lectures.What you have done is OK, but depending on what is asked in a question it is important to be able to explain how futures actually work.
I saw the lecture. It’s really amazing when things are “proved”. Thank you
I understood the concept of lock in rate but in the exam, can I just calculate it the way I did?
I hope that wouldn’t be an issueYes, you can do as you wrote in your earlier post. However, as I wrote, just in case you are asked to write about it then make sure that you are clear as to what strictly happens.
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