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Good Night,
In respect of the Currency Futures for the 3 months payment, I don’t understand why the following was done to derive spot i.e. (1\1.439)= .6949 when calculating the basis.
The futures prices are quoted in Pounds per Euro.
To calculate the basis we therefore need to use the spot rate in Pounds per Euro.
Given that the spot rates are given as Euros per Pound, we need to take 1 dividend by the spot rate to get a quote as Euros per Pound.Can you please help in respect of the currency futures for the 2 months payment, why 1.433 has been used as spot rate instead of the 1.439
The transaction is converted at the spot rate on the date of the transaction (which is in 2 months time). We are not told the spot rate in 2 months time and so have had no choice but to assume it will be equal to the 2 month forward rate.
I do suggest that you watch my free lectures on foreign exchange risk management.
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