Hello sir I am very confused while calculating the lock in rate..please tell me where am I going wrong here:
the basis is the current spot rate- opening future rate which is 1.585 -0.8656 =0.7194
remaining basis = (march to may is 3 nd total are 4 months till june ) so 0.17985
lock in rate = 0.8656+ 0.17985= 1.0454
the examiner has solved it in a different manner I want to practise this using the lock in rate pleasee help
thanks
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Lirio co. march/june 2016
8y ago#1The problem is that the spot rate and the futures price are quoted the other way round from each other (the spot rates are per euro and the futures are per $). (It is easily missed but the way to notice this is because the futures price will never be that much different from the spot rate).
So....you need to convert the spot rate to the same way round as the futures. 1.1585 $'s per Euro is the same as 1/1.1585 = 0.8632
So the basis is 0.8656 - 0.8632 = 0.0024, and the unexpired basis is 0.0024/4 = 0.0006.
So the lock-in rate = 0.8656 - 0.0006 = 0.8650
I hope that makes sense :-)
(What the examiner has done is apportion between the March and June futures prices)
oh ohkayy so now I get it but I have a very small confusion here that 1.1585 converted is 0.8632 and 1.1618 converted is 0.8607 so won't we take this smaller rate per dollar as the spot rate??
thankyou for your response
8y ago#3No, because they are receiving Euros.
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