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Hi John. Watching through your lectures on AFM, I got a question about lock in rate.
If both spot and future rate rise at increasing rate, then would the lock in rate still be relevant? because you said lock in rate would give us the net effect of contract amount exchanged at the spot rate, adding or subtracting any gain or loss from the future trade.
You said both figures(spot and future) are getting close to each other linearly, which only makes sense in the assumption, and I get it. But what if they are getting close to each other while moving upward or downward in certain direction? eg. spot 1.71 future 1.69 spot 1.73 future 1.72 I mean, if this kind of trend continues, then wouldn’t lock in rate be no longer relevant for working out the estimate figure for future rate in that it only involves the basis of the very first spot and future rate when computing it? The actual results will be more or less significantly different with lock in rate, so will the hedging outcome accordingly. Or is that just me being stupid enough to dig into this topic alone looking up all relevant info on youtube and so forth because I misunderstood what you said.. Anyway I’m almost there to read through your lecture note once, and this is a pain in the ass obviously. Is it a bad idea to stop my whole progress once there is something I can’t possibly understand till I fully get it?