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Hi sir,
I have some question on futures calculation.
1. Why there has no net outcome calculated?
2. Why the number of contract cannot just used 20,000,000/1.3698? Is it because of five month contract closed out in four month,so we need to subtract that one month from it?
3. For lock in rate, where to get 1/5?Thank you~
This is question 2 (not question 1 🙂 )
1. You could have calculated the net outcome. Using the lock-in rate is itself calculating the net outcome (because the know that the only reason it will not be a ‘perfect hedge’ is because of the change in the basis.
2. You could have calculated the number of contracts in that way – it would still have got full marks.
3. The loan starts in 4 months time. We are using futures that end in 5 months time. So on the date the loan starts, there is 1 month left on the future. So the basis will have fallen by 4/5, there will be 1/5 left (because we assume that the basis falls linearly over the life of the future).
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