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Hi Mr John,
i tried to find the answer of my question in your previous replies, but still not clear. please explain once again
The current basis on the March futures price is 44 points and it is expected to be 33 points on 1 January 20X5, 22 points on 1 February 20X5 and 11 points on 1 March 20X5. —– it says March is 44, then march is 11, what does it mean? the same month with 2 basis?
We expect to borrow on 1 February, as basis is provided for FEB,( which is mainly not provided for the same months, mainly we are taking next close month, ) , we are taking basis for FEB , right?
may you please clarify above 2 questions please.
thank you in advance
The basis is the difference between the futures price and the equivalent interest rate on a particular day, and the basis reduces to zero over the life of the future.
As of now (1 December 2014), the basis is 44 points (“the current basis”). On 1 January 2015 it will be 33 points, on 1 February 2015 it will be 22 points, and on 1 March 2015 it will be 11 points.
Given that the borrowing will start on 1 February we are using March futures and to calculate the futures price on 1 February we take the equivalent to the interest rate on 1 February and adjust by the basis on 1 February
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