Can someone tell me how to derive the relationship between currency futures and the corresponding spot forex pair quotes? For example, if I think USDJPY would hit 123.00 and reverse, how can I derive the corresponding 6J M7 price when USDJPY hits 123.00? I think it is a function of the interest rates of these two currency as well as the number of remaining days to the futures contract expiration day. Can someone give me a general formula? Besides the factor of interest rates, is there any other factor may affect the relation? Thanks in advance.
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the relation between currency futures and spot fx quotes?
- Thread starter clearpicks
- Start date
Quote from clearpicks:
Can someone tell me how to derive the relationship between currency futures and the corresponding spot forex pair quotes? For example, if I think USDJPY would hit 123.00 and reverse, how can I derive the corresponding 6J M7 price when USDJPY hits 123.00? I think it is a function of the interest rates of these two currency as well as the number of remaining days to the futures contract expiration day. Can someone give me a general formula? Besides the factor of interest rates, is there any other factor may affect the relation? Thanks in advance.
Use excel
future=1/(spot*exp((jpy rate-usd rate)*maturity of future in years))
note: jpy and usd rates are the market consensus at maturity
Panurgo,
Where can I get the value of market consensus rates at maturity?
Regards,
Clearpicks
Where can I get the value of market consensus rates at maturity?
Regards,
Clearpicks
Clearpicks, the CME has already done all the heavy lifting for you...
http://equivalentsrdc.cme.com:443/index.html?
You'll need to register once, but it's free, instant, no strings attached.
That E-quivalents (cute) page continuously converts from futures to spot prices. Those are real-time bid/ask prices, DOM, volumes, etc. (pretty generous of the Merc) for your choice of any 3 of the 6 majors, near or further out contracts. Click on "How to Use" link at the top, then move your mouse for detailed explanations.
Your dolar-yen example:
USD/JPY spot = 123.00
forward points = -67 (as of today, May 4th)
____________
--> June 6EM7 future = 1 / (123 - 0.67) = 1 / 122.33 = .008175
Check: 1 / .008175 + .67 = 123.00
http://equivalentsrdc.cme.com:443/index.html?
You'll need to register once, but it's free, instant, no strings attached.
That E-quivalents (cute) page continuously converts from futures to spot prices. Those are real-time bid/ask prices, DOM, volumes, etc. (pretty generous of the Merc) for your choice of any 3 of the 6 majors, near or further out contracts. Click on "How to Use" link at the top, then move your mouse for detailed explanations.
Your dolar-yen example:
USD/JPY spot = 123.00
forward points = -67 (as of today, May 4th)
____________
--> June 6EM7 future = 1 / (123 - 0.67) = 1 / 122.33 = .008175
Check: 1 / .008175 + .67 = 123.00