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in doing future currency hedge buy at 19 contract at 96.60 and sell 19 dec contract at 96.671
how we got this ( 96.50 plus expected basis .171 )
as the current spot is 96 how we got this 96.50 i didnt drive to 96.671 pleas advice
I am sorry, but I do not know what you mean by ‘question 63’ !
Please give me the name of the question.
(Have you watched the free lectures on interest rate risk management?)
this is kaplan kit
I watch lecture and i undstand hoe to caluclate basis and expected future rate and lock rate but in this question how we got this 96.671 ??? in the answer ( sell at 96.60 )
I do not have the Kaplan kit!
If it is a past exam question then please tell me the name of the question and the date of the exam – then I will be able to find it and hopefully be able to help you.
(Have you watched our free lectures? (and the lecture on lock in rates))
the name of question is interest rate hedge kaplan exam kit question number 63
Sorry, but I don’t have the Kaplan exam kit. If it is a past exam question then I can find it elsewhere, but otherwise I can’t help you.
The current LIBOR equivalent price will be 96.00 (because LIBOR is 4%, so 100 – 4).
So the current basis is 0.60The question says that LIBOR will fall by 0.5% (so to 3.5%) and therefore the equivalent futures price would be 96.50 (100 – 3.5).
You say that you are happy calculating that the basis will fall to 0.171, so the actual futures price at the date of the transaction will be 96.50 + 0.171 = 96.671
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