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Dear sir, If I bought March currency future at lets say x amount. If I had bought this at January and descide to keep it Till the last of March. WIll this give me the right to exchange at the price that I bought it at which was X amount. or the price that would have been trading? or NO currency will be exchanged?
How does this work. Can you by kind enough to explain. ThanksI went back to the lecture notes, I think I got it. can you tell me if this is correct or not.
If I bought march futures that would allow me to convert to dollars at a fixed rate 1.52(say)
However, since this are traded just like the share option premium the price of the futures contract trade. these prices (future prices) are the prices to that allow you to buy contract to exchange at end of march at 1.52.
If the spot prices increase to 1.53 then the price of the future would also increase since the exercise price is 1.52 and more people would want to convert at a lower rate.the price of the futures is not the same as the exercise rate. (1.52) but it can play a factor in pricing of the futures contract.
If I would hold to the futures at the end of march I would have the right to convert at 1.52 no matter at which ever price I had bought it in. but since it is mostly used for gambling purposes I would sell it beforehand the expiry of the futures contract
is this correctI think you are confusing futures with options.
Using futures does not entitle you to convert at a fixed rate. The underlying transaction is converted at whatever the spot rate is on the date of the transaction. At the same time the futures deal is closed and there is a gain or loss on the futures. The net effect is to effectively fix the rate at the date of the transaction (to the lock-in rate) subject to any over or under hedge due to the contract size.
But in the lecture you’ve said that the currency futures are right to convert in a future date at a FIX rate.
is the price of the future different from the fix price(stated on the contract)
IF so, is there any link between the fix price to quoted and the traded future price. What about the basis. how does at the end of the contract the spot rate equals to the price of the future theoretically.
If the future gives you the right to convert at a fix date wouldnt it be like option.
Can you please clear this concept for me. This is killing me.IF so, is there any link between the fix price to quoted and the traded future price. What about the basis. how does at the end of the contract the spot rate equals to the price of the future theoretically.
If the future gives you the right to convert at a fix date wouldnt it be like option.
Can you please clear this concept for me. This is killing me.Futures do give the right to convert at a fixed rate on a fixed future date. However that is not how exchange rate futures are used because it is extremely unlikely that the fixed future date will be the same as the date of the transaction.
The way futures are used is that because just as the spot rate changes from day to day, so to the futures price will change from day to day. So on the date of the underlying transaction, just as the spot rate will be different from the current spot rate so to the futures prices will be different from what it is today. If we start a futures deal now and close the deal on the date of the transaction, then the gain or loss on the futures will ‘cancel out’ the gain on loss on the transaction and the net effect will be to have fixed the rate (subject to the basis risk and the fixed contract sizes which will mean that is does not work perfectly in practice).
I do explain this with several examples in my lectures.
Dear sir the basis would be 0 at the end of the futures term is because the spot rate would be equal to the futures price. why would this two rate be equal. I know you mention this in the lecture videos but i am not able to understand Thank u
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