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sir in this question how do we know the sign of the basis points? As in how do we assess the direction? Whether the futures price is greater or lesser than the spot price? They have just given us the magnitude.
“Option prices are quoted in basis points at 100 minus the annual % yield and settlement of the options contracts is at the end of March 20X5. 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.”
The question was the only time that the examiner has done this (not given the signs) and I do not think he would do it again.
Because the signs were not given, people were given full marks if they assumed they were all positive or all negative.
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