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Sir in the answer part
Hedging using options on futures
They have used excercise price 4 and 3.5%
And June future price of 3.98 and 2.98%. Can u please explain how they to get these amounts . I don’t see them in questionSir I get the excercise price which is 100-96 and 100-96.5
But I don’t understand how they got June future priceThe futures prices are not 3.98 and 2.98. They are 96.02 and 97.02.
In each case they are 100 less the interest rate and less the unexpired basis of 0.18.
So when the interest rate is 3.8%, the futures price is 100 – 3.8 – 0.18 = 96.02.
When the interest rate is 2.8%, the futures price is 100 – 2.8 – 0.18 = 97.02.I explain about the basis, and how we calculate it, in my free lectures on foreign exchange risk management.
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