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Hi sir. Im trying to tackle the Phobos co question. For The future it gave us the opening and settlement prices
According to my understanding
The settlement prices is at the end of the month ie: 30 march
However the future will be settled on the 1st march.
We need to calculate a new settlement price taking into consideration the basis risk.
So the opening future will be 93.80 and the new settlement will be 92.93
However in the marking scheme it took the settlement price as the opening future price. That means how I did is wrong
Could you kindly help me out pleaseThanks so much sir
It is the wording in the question that has confused you (it was the previous examiner, and he was told off for this. I do not believe that there is any chance of the current examiner using these words).
Open and Settlement prices are quoted in the newspapers. Open is what the price of the future was at the start of the day, Settlement is the price at which deals actually happened on the day. So the settlement price is the price we use as ‘todays’ price of the future. (The open price is not relevant at all).
Again, I really would not worry about this – the current examiner simply quotes ‘todays’ futures price without all the confusion.
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