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Hello John
Why is the unexpired basis being deducted in this scenario? I understand that the lock-in rate must be between the current spot and current futures, but since that info isn’t available here, how do we know whether to add or subtract unexpired basis?
We don’t and it was a mistake of the examiner to present it like this. He accepted this and you would have got full marks whichever way you adjusted (even though obviously the final answer would be different).
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