Sir just wanted to know in part (a)of this question how is there one month between the clouser and maturity of contract which month are they taking into consideration. And this 12 basis point is for three months is it because in lecture u mentioned abt this three months or is it something else.
Ask the Tutor ACCA AFM
phobos12/08
Sir could u pls explain me this solution how is this Future price at closeout came is it 100-7 =93 then take of 4 ticks and same 100-5 =95 then again take of 4 ticks if yes then why are they taking off in both of them.Then how r number of ticks 92 and (108) please explain me your way I looked at lecture they r too good but these solution r confusing me a bit so pleass help. Thank you.
11y ago#2The loan will start on 1 March - this is when they will finish/close the futures deal. They are using March futures which expire at the end of March.
So there is one month between the two.
The current basis is the difference between the current spot and the current futures price i.e. 0.12
The loan starts in 2 months time (per the question), the futures expire in three months time (one month later, as above) and so on the date of the transaction the basis will have fallen to 1/3 x 0.12 = 0.04 (it falls linearly to zero over the life of the future).
Therefore, depending on the interest rate at the start of the loan (7% or 5%), the futures price will be different by 0.04.
Sign in to reply to this topic.