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In this question (a) part, the basis would be 0.0018 (1.1222-1.1204)
This is for a futures with 6months expiry from now, and I will receive the deposit 4 months from now, then shouldn’t the unexpired basis be calculated as (0.0018*2/6), in the answers, they have taken (0.0018*4/6).John, please clarify the same.
Thanks a lotYou can get the same answer three ways.
Take the current spot rate and adjust by the expired basis: 1.1222 – ((1.1222 – 1.1204) x 4/6) = 1.1210.
or:
Take the current futures price and adjust by the unexpired basis: 1.1204 + ((1.1222 – 1.1204) x 2/6 = 1.1210
or (although I do not like this way)
Apportion between the 3 and 6 month futures prices to get a 4 month futures price (so take the 3 month price and add on an extra month as 1/3 of the difference between the two futures prices:
1.1213 + (1/3 x (1.1213 – 1.1204)) = 1.1210The examiners answer shows the first and the last of these three ways, but any of the ways will do (and clearly they all give the same answer 🙂 )
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