Chapter 3

Future Contract
3.1 Concept and Mechanism of Future Contracts
3.2 Types of Future
3.3 Pricing of Future
3.4 Hedging using Futures
3.5 Stock Index Futures

3.1 CONCEPT & MECHANISM OF FUTURE CONTRACTS

A futures contract, or simply called futures, is a contract to buy or sell a stated quantity of a
commodity or a financial claim at a specified price at a future specified date. The parties to
the futures have to buy or sell the asset regardless of what happens to its value during the
intervening period or what happens to be the price on the date when the contract is
implemented.

Both the parties to the futures have a right to transfer the contract by entering into an
offsetting futures contract. If not transferred until the settlement/specified date, then they
have obligations to fulfill the terms and conditions of the contract. Futures are traded on the
exchanges and the terms of the futures contracts are standardized by the exchange with
reference to quantity, date, units of price quotation, minimum change in price (tick), etc.

Futures can be in respect of commodities such as agricultural products, oil, gas, gold, silver,
etc., or of financial claims such as shares, debentures, treasury bonds, share index, foreign
exchanges, etc.

In a futures contract, the parties fix the terms of the transaction and lock in the price at
which the transaction will take place between them at future date. The futures contract, as
they appear to be, providing for the physical delivery of the asset, however, in practice most
of the futures are settled by and offsetting futures contract. If a particular futures is not
settled by the party himself then it will be settled by the exchange at a specified price and
the difference is payable by or to the party. The basic motive for a future is not the actual
delivery but the hedging for future risk or speculation. Further, in certain cases, the physical
asset does not exist at all. For example, in case of Stock Index Futures, the Index is the
weighted average price and cannot be delivered. So, such futures must be cash settled only.

Futures are traded at the organized exchanges only. Some of the centers where futures are
traded are Chicago Board of Trade, Tokyo Stock Exchange, London International Financial
Futures Exchange (LIFFE), etc. The exchange provides the counter-party guarantee through
its clearing house and different types of margins system. Futures contracts are marked to
market at the end of each trading day. Consequently, these are subject to interim cash flows
for adverse or favourable price movement. With reference to trading in Stock Index Futures,
SEBI has provided that the participating parties have to deposit an initial cash margin as well
as that difference in traded price and actual price on daily basis. At the end of the
settlement period or at the time of squirring off a transaction, the difference between the
traded price and settlement price is settled by cash payment. No carry forward of a futures
contract is allowed beyond the settlement period. National Stock Exchange (NSE) has issued
the Futures and Options Regulations, 2000 which are applicable to the derivative contracts
(both futures and options) traded at the NSE.

3.2 TYPES OF FUTURE

There are different types of contracts in financial futures which are traded in the various
futures financial markets of the world. These contracts can be classified into various
categories which are as under:

Interest Rate Futures

It is one of the important financial futures instruments in the world. Futures trading on
interest bearing securities started only in 1975, but the growth in this market have been
tremendous. Important interest- bearing securities are like treasury bills, notes, bonds,
debentures, euro-dollar deposits and municipal bonds. In this market, almost entire range of
maturities bearing securities is traded. For example, three- month maturity instruments like
treasury bills and euro-dollar time deposits, including foreign debt instruments at Chicago
Mercantile Exchange (CME), British Government Bonds at London International Financial
Futures Exchange (LIFFE), Japanese Government Bonds at CBOT, etc. are traded.

This market is also further categorized into short-term and long-term interest bearing
instruments. A few important interest rate futures traded on various exchanges are:
notional gilt-contracts, short-term deposit futures, treasury bill futures, euro-dollar futures,
treasury bond futures and treasury notes futures.

Foreign Currencies Futures

These financial futures, as the name indicates, trade in the foreign currencies, thus, also
known as exchange rate futures. Active futures trading in certain foreign currencies started
in the early 1970s. Important currencies in which these futures contracts are made such as
US-dollar, Pound Sterling, Yen, French Francs, Marks, Canadian dollar, etc. These contracts
have a directly corresponding to spot market, known as interbank foreign exchange market,
and also have a parallel interbank forward market. Normally futures currency contracts are
used for hedging purposes by the exporters, importers, bankers, financial institutions and
large companies.

Bond Index Futures

Like stock index futures, these futures contracts are also based on particular bond indices,
i.e., indices of bond prices. As we know that prices of debt instruments are inversely related
to interest rates, so the bond index is also related inversely to them. The important example
of such futures contracts based on bond index is the Municipal Bond Index futures based on
US Municipal Bonds which is traded on Chicago Board of Trade (CBOT).

Cost of Living Index Futures

This is also known as inflation futures. These futures contracts are based on a specified cost
of living index, for example, consumer price index, wholesale price index, etc. At
International Monetary Market (1MM) in Chicago, such futures contracts based on
American Consumer Price Index are traded. Since in USA, the inflation rates in 1980s and
1990s were very low, hence, such contracts could not be popular in the futures market. Cost
of living index futures can be used to hedge against unanticipated inflation which cannot be
avoided. Hence, such futures contracts can be very useful to certain investors like provident
funds, pension funds, mutual funds, large companies and governments.

EVOLUTION OF FUTURES MARKET IN INDIA

➢➢ Organized futures market evolved in India by the setting up of “Bombay Cotton Trade
Association Ltd.” in 1875. In 1883, a separate association called “The Bombay Cotton
Exchange Ltd.” was constituted.
➢➢ Futures trading in oilseeds were started with the setting up of Gujarati Vyapari Mandali
in 1900. A second exchange, the Seeds Traders’ Association Ltd., trading oilseeds such as
castor and groundnuts, was setup in 1926 in Mumbai. Then, many other exchanges trading
in jute, pepper, turmeric, potatoes, sugar, and silver, followed.
➢➢ Futures market in bullion began at Mumbai, in 1920.
➢➢ In 1940s, trading in forwards and futures was made difficult through price controls till
1952 when the government passed the Forward Contract Regulation Act, which controls all
transferable forward contracts and futures.
➢➢ During the 1960s and 70s, the Central Government suspended trading in several
commodities like cotton, jute, edible oilseeds, etc. as it felt that these markets helped
increase prices for commodities
➢➢ Two committees that were appointed—Datwala Committee in 1966, and Khusro
Committee in 1980, recommended the reintroduction of futures trading in major
commodities, but without much result.

One more committee on Forwards market, the Kabra Committee was appointed in 1993,
which recommended futures trading in wide range of commodities and also up

3.3 PRICING OF FUTURE

Refer Practical Questions

3.4 HEDGING USING FUTURES

In simple term, a hedge is a position taken in futures or other markets for the purpose of
reducing exposure to one or more types of risk. A person who undertakes such position is
called as ‘hedger’. In other words, a hedger uses futures markets to reduce risk caused by
the movements in prices of securities, commodities, exchange rates, interest rates, indices,
etc. As such, a hedger will take a position in futures market that is opposite a risk to which
he or she is exposed. By taking an opposite position to a perceived risk is called ‘hedging
strategy in futures markets’. The essence of hedging strategy is the adoption of a futures
position that, on average, generates profits when the market value of the commitment is
higher than the expected value. For example, a treasurer of a company knows the foreign
currency amounts to be received at certain futures time may hedge the foreign exchange
risk by taking a short position (selling the foreign currency at a particular rate) in the futures
markets. Similarly, he can take a long position (buying the foreign currency at particular
rate) in case of futures foreign exchange payments at a specified futures date.

The hedging strategy can be undertaken in all the markets like futures, forwards, options,
swap, etc. but their modus operandi will be different. Forward agreements are designed to
offset risk by fixing the price that the hedger will pay or receive for the underlying asset. In
case of option strategy, it provides insurance and protects the investor against adverse price
movements. Similarly, in the futures market, the investors may be benefited from
favourable price movements.

3.5 STOCK INDEX FUTURES

These are another major group of futures contracts all over the world. These contracts are
based on stock market indices. For example, in the US markets, there exist various such
futures contracts based on different indices like Dow Jones Industrial Average, Standard and
Poor’s 500, New York Stock Exchange Index, Value Line Index, etc. Other important futures
contracts in different countries are like in London market, based on the Financial Times—
Stock Exchange 100 share Index, Japanese Nikkei Index on the Tokyo Futures Exchange and
on the Singapore International Monetary Exchange (SIMEX) as well. Similarly, in September,
1990, Chicago Mercantile Exchange began trading based on Nikkei 225 Stock Index and
Chicago Board of Trade launched futures contracts based on the TOPIX index of major firms
traded on the Tokyo Stock Exchange.

One of the most striking features of these contracts is that they do not insist upon the actual
delivery, only trader’s obligation must be fulfilled by a reversing trade or settlement by cash
payment at the end of trading. Stock Index futures contracts are mainly used for hedging
and speculation purposes. These are commonly traded by mutual funds, pension funds,
investment trusts, insurance companies, speculators, arbitrageurs and hedgers.

THEORY QUESTIONS

1: Distinguish between forward and futures contract.

(AM-7 Marks Summer-15)
Answer
Differences between Forwards and Futures
Apparently, forwards contracts and futures contracts seem to be similar, Both relate to a
contract to be fulfilled on a future date at the Pre specified rate for a specific quantity.
However, there are a number of differences between the forwards and the futures. The
forwards contracts are private bilateral contracts. These are traded off-exchanges and are
exposed to default risk by either party. Each forward contract is unique in terms of size, time
and types of assets, etc. The price fixation may not be transparent and is not publicly
disclosed. A forward contract is to be settled by delivery of the asset on the specified date.

On the other hand, futures contract is a contract to buy or sell a specified quantity of a
commodity or a specified security at a future date at a price agreed to between the parties.
Since these contracts are traded only at organized exchanges, these have built-in safeguard
against default risk, in the form of stock brokers or a clearing house guarantee.

The idea behind futures contracts is to transfer future changes in the prices of commodities
from one party to another. These are trade able and standardized contracts in terms of size,
time and other features. These contracts are transparent, liquid and trade able at specified
exchanges. Futures also differ from forwards in that former are subject to daily margins and
fixed settlement period.

Both forwards and futures contracts are useful in cases where the future price of the
commodity is volatile. For example, in case of agricultural products, say sugarcane, the
peasant’s revenue is subject to the price prevailing at the time of harvesting. Similarly, the
sugar-mill is not sure whether it will be able or not to procure required quantity of
sugarcane at the reasonable price.

Both parties can reduce risk by entering into a forward or futures contract requiring one
party to deliver and other party to buy the settled quantity at the agreed price regardless of
the actual price prevailing at the time of delivery. Both result in a deferred delivery sale.
However, it can be offset by a counter contract.

Futures market is a formalized and Futures market is a formalized and standardized forward
market. Players and sellers do no meet by chance but trade in the centralized market. No
doubt, the standardization process eliminates the flexibility available in the informal
contacts (i.e., forwards).

Futures have four specific characteristics as against the forwards:

1. Liquidity, as futures are transferable.
2. Standard volume.
3. Counter-party guarantee provided by the Exchange.
4. Intermediate cash flows.

Futures contracts have evolved out of forwards and possess many of the characteristics of
forwards. In essence, futures are like liquid forward contracts. As against forwards, futures
as a technique of risk management, provide several services to the investors and
speculators as follows
(i) Futures provide a hedging facility to counter the expected movements in prices.
(ii) Futures help indicating the future price movement in the mart.
(iii) Futures provide an arbitrage opportunity to the speculators.
2: “In a future market, the clearing house bears all default risk because it guarantees every
futures contract to both the buyer and the seller”. Evaluate the statement.
(AM-7 Marks Summer-15)
3: What is meant by basis risk when futures contract are used for hedging? Explain.
(AK-7 Marks Summer-14)
4: What is meant by perfect hedge? Does a perfect hedge always had to a better outcome
than an imperfect hedge? Explain your answer? Explain.
(AK-7 Marks Summer-14)
5: What are Basic risks, when future contract are used hedging?
(AJ-7 Marks Winter-13)
6: What is naïve hedging? How it is different from price sensitivity model? Explain.
(AJ-7 Marks Winter-13)
7: What is the financial future contract? Explain with suitable example.
(AJ-7 Marks Winter-13)
8: What are interest rate derivative securities? State its relevance in current market
situation.
(AJ-7 Marks Winter-13)
9: How do currency forward and futures contracts differ with respect to maturity,
settlement and the size and timing of cash flows?
(AH-7 Marks Winter-12)
10: State the concept and significance of initial margin and maintenance margin in future
market?
(AH-7 Marks Winter-12)
Answer
Before entering into a futures contract, the prospective trader (investor) must deposit some
funds with his broker which serves as a good faith deposit. In other words, an investor who
enters into a futures contract is required to deposit funds with the broker called a margin.
The basic objective of margin is to provide a financial safeguard for ensuring that the
investors will perform their contract obligations. The exchanges set minimum margins but
the brokers may require larger margins if they are concerned about an investor’s financial
situation because they are ultimately responsible for their clients’ losses. The amount of
margins may vary from contract to contract and even broker to broker.

The Maintenance Margin

The maintenance margin is the minimum amount which must be remained (kept) in a margin
account. In other words, so much minimum, balance in the margin account must be
maintained by the investor. This is normally about 75 percent of the initial margin. If the
futures prices move against the investor resulting in falling the margin account below the
maintenance margin, the broker will make a call, i.e., asking the client to replenish the
margin account by paying the variation. Hence, the demand for additional fund is known as
a margin call.
For example, assume that the initial margin on a futures contract is ₹ 5,000 and the
maintenance margin ₹ 3,750 (75% of the initial margin). The next day assume that the party
has sustained a loss of ` 1,000, reducing the balance in margin to ₹ 4,000. Further assume
that on the next day the price decreased and sustained loss is ₹ 500. Thus, the balance
remained in the margin account to ` 3,500, below the maintenance margin. In this situation,
the broker will make a call (margin call) to replenish the margin account to ₹ 5,000, the level
of initial margin.

The Variation Margin

It refers to that additional amount which has to be deposited by the trader with the broker
to bring the balance of the margin account to the initial margin level. For instance, in the
above mentioned example, the variation margin would be 1500 (5000 — 3500), i.e., the
difference of initial margin and the balance in the margin account, the same has been
shown in Fig. If the investor does not pay the initial margin immediate, the broker may
proceed to unilaterally close out the account by entering into an offsetting futures position.

Margins and Marking-to-Market (Daily Settlement)

It has been observed that the initial margin, sometimes, is even less than 5 percent which
seems to be very small considering the total value of the futures contract. This smallness is
reasonable because there is another safeguard built in the system, known as daily
settlement marking-to-market. In the futures market, all the transactions are settled on
daily basis. Thus, the system of daily settlement in the futures market is called marking to -
market. The traders realize their gains or losses on the daily basis.

11: What is hedging? What are the different hedging strategies?

(AH-7 Marks Winter-12)
12: Explain the applications of short term interest rate futures.
(AE-7 Marks Summer-11)
13: Examine the relationship between basis risk and hedging.
(AE-7 Marks Summer-11)
14: What is hedging, short hedging, long hedging and cross hedging?
(AE-7 Marks Summer-11)
15: Explain the relationship between forward and futures prices with examples.
(AD-7 Marks Winter-10)
16: Under what circumstances are a short hedge and a long hedge appropriate? Explain with
examples.
(AD-7 Marks Winter-10)
17: What is financial futures contract? Explain the types of trader in futures markets with
suitable examples.
(AD-7 Marks Winter-10)
18: What is hedging? Explain different hedging strategies.
(JSD-7 Marks Summer-09)
19: What is Margin Money? Also explain difference types of margin giving suitable examples
 (JSD-7 Marks Summer-09)
20: How are stock futures different from stock options? Explain.
(JSD-7 Marks Summer-09)
21: What are straddle strategies? How these are different from strangle strategies?
(JSD-7 Marks Summer-09)

PRACTICAL QUESTIONS

1: On January 15, when the price of Neptune Ltd. Share is Rs. 473. A trader buys 10
contracts of March futures on Neptune at Rs. 491. Assume that the initial margin is Rs. 800
per contract and 100 shares underlie each future contract. Daily settlement prices for the
next few days are as follows:
Jan 15 Rs. 496
Jan 16 Rs. 503
Jan 17 Rs. 488
Jan 18 Rs. 485
Jan 19 Rs. 491
What are the profit/losses for the trader over the five days?
(AM-7 Marks Summer-15)
2: A company has Rs. 2 million portfolios with a beta of 1.2. It would like to use futures
contract on the nifty 50 to hedge its risk. The index is currently standing at 4,200 and each
contract is for delivery of Rs. 200 times the index. What is the hedge ratio that minimizes
risk? What should the company do if it wants to reduce the beta of the portfolio to 0.6?
(AK-7 Marks Summer-14)
3: The cash price of a quintal of coffee is Rs. 7,200. A one-year futures price of coffee is Rs.
7,600. The appropriate carrying cost is 5%. Is there an arbitrage opportunity? If so, how can
it be exploited?
(AK-7 Marks Summer-14)
4: In April MNO 500 futures are available in the market of Rs. 11.50. Investor bought two
contracts and given to broker for its sale in near futures. The initial margin of the broker is
50% of the current market price of the future, where as maintenance margin requirement is
40% of the same. The future is quoted in the market for next two weeks. Show the
incurrence of call notice on the basis of given data.
Trade Dates Future Price Trade Dates Future Price
October 3 11.50 October 4 11.08
October 5 11.80 October 6 10.40
October 7 12.10 October 10 10.50
October 11 9.20 October 12 13.20
October 13 9.50 October 14 9.10

(AJ-7 Marks Winter-13)

5: On July 1, an investor holds 50,000 shares of a certain stock at $30 per share. The investor
in interested in hedging against movement in the market over the next month and decides
to use the September. Mini S & P 500 future contract. The index future price is currently
1500 and one contract is for delivery of $50 times the index, the Beta of stock is 1.3. What
strategy should the investor follow?
(AJ-7 Marks Winter-13)
6: Suppose the Yen value of a Dollar (U.S) is ¥100/$ and that it has an equal probability of
moving to either ¥90.484/$ or ¥110.517/$ in one period. To what continuously
compounded sales of return do these changes correspond?
(AJ-7 Marks Winter-13)
7: Consider a six month future contract to buy a share of ABC company of market price of
Rs. 950/-. The risk free rate of return is 8% continuously compounded. What could be the
price of future contract, if declared dividend is Rs. 20 for 2 months?
(AJ-7 Marks Winter-13)
8: An asset costing Rs. 2,000 that gives convenience yield of 2% p.a. and risk free rate of
interest is 10% p.a. Calculate the price of 4 month future contract, when storage cost is 3%
p.a.
(AJ-7 Marks Winter-13)
9: Aman Amla Co. Ltd. Invested Rs. 10 Lakhs in 3 stocks namely X, Y and Z which holds in the
proportion of 0.50, 0.25, 0.25 and their respective Beta are 1.6, 2.0 and 0.8. If Nifty future is
1700 points in the multiple of 50. What should we do to decrease the portfolio risk of 1.2?
(AH-7 Marks Winter-12)
10: Indiana Co. knows that it will buy 40 lacks shares of Bharat Ltd. Co. in next six month.
The standard deviation of changes in the price per share over six month period is calculated
as 0.040. the company chooses to hedge by future contract by buying future contract, one
future contract consists of 84,000 shares. The standard deviation changes in future price
over a six month period to 0.050 and co-efficient of co-relation -0.5. Calculate the optimal
hedge ratio and number of future contract to hedge risk.
(AH-7 Marks Winter-12)
11: An investor long (buy) on a stocks currently selling of Rs. 40/ each. He buy the stock in
1200 numbers taking loan at 10% p.a. then he short on future contract to be exercised at
the end of one year to hatched his risk.
(i) Calculate the price of future contract.
(ii) Calculate the price of future contract if there is a known income of Rs. 5000 towards
the end of the year.
(iii) Calculate the price of the future contract with the yield @ 6%.
(AH-14 Marks Winter-12)
12: A copper fabricator required 20,000 kg of copper on January 15 to meet a certain
contract on May 20. The spot price of copper is Rs. 120 per kg and May 20 future price is Rs.
150 per kg. Each contract that is traded on comex is of 5,000 kg. What type of position
copper fabricator should take in the futures market? Show the statement of result from the
above transaction.
(AE-7 Marks Summer-11)
13: Amravati Co. has just negotiated a contract to sell two million bassels of oil on March 20,
it has been agreed that the price that will apply in the contract is the market price on August
20. Company is in position where by it will gain Rs. 1000 for each one percent increase in
price of oil and will lose Rs. 1000 for each one percent decrease in price of oil. Suppose the
spot price on March 20 is Rs. 30 per bassel and August oil futures price on the commodity
exchange is Rs. 29 per bassel. Since contract on (commodity market) is for the delivery of
200 bassels. How company can hedge the risk of prices of oil fall down. Explain the hedging
strategy with a table.
(AE-7 Marks Summer-11)
14: On November 15 XYZ Ltd. Establish a long position in 200 shares of TCS, on December 1,
of a future price Rs. 600 per share, initial margin for contract is Rs. 30,000 and maintenance
margin is Rs. 20,000. Draw a table showing margin and marketing to market for XYZ on
December 1, with the following information,
Date November 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 27, 31
Future prices: RS. 600, 550, 650, 600, 605, 590, 580, 600, 620, 630, 640, 660, 690.

15. A speculator predicts a price increase in the gold futures market from current futures
price of Rs. 5000 per 10 gm. The market lot is 10 gm, speculator buys one lot of futures Gold
of Rs. (5000X10) 50,000/-. Assume that the margin is 10%. What amount of margin money is
required? If prices of Gold increase by 20%, what will be profit to speculator?

16. Suppose current price of TISCO share of NSE is RS. 200/- per share and futures price for
delivery in next six month is Rs. 250/- per share. An arbitrageur can borrow of 10% per
annum. What should arbitrageur do?
(AE-14 Marks Summer-11)

17: Consider the position of an investor who shorts 1000 TISCO shares in May when the
price per share is RS. 100 and closes out the position by buying than back in August when
the price per share is Rs. 80. Suppose that a dividend of Rs. 2 per share is paid in June. What
will be the gain/loss to investor?
(AD-7 Marks Winter-10)

18: A company knows that it will buy 2 million gallon fuel of jet in six months. The standard
deviation of the change in price per gallon of fuel over a six month period is calculated as
0.020. The company chooses to hedge by buying futures contracts on heating oil. The
standard deviation of the change in the futures price is over three months period is 0.025
and the co-efficient of correlation between the three months change in the price of jet fuel
and the three months change in futures price is 0.5. Calculate the optimal hedge ratio and
number of Contracts Company should buy to hedge the risk.
(AD-7 Marks Winter-10)
19: An investor predicts a price increase in the silver futures market from current futures
price of Rs. 8000 per kg. The market lot is being 10 kg. He buys one lot of futures silver of
(8000X10) Rs. 80,000. Assume that margin is 20%, what is amount of margin money?
Suppose, if the price of silver is increased by 20%, what will be profit/loss to investor?
(AD-7 Marks Winter-10)
20: Explain the concept and importance of ‘initial margin’ and ‘maintenance margin’ in
futures market. A 2 months LMN 450 futures contract is selling at Rs. 32. A portfolio
manager wants to use this futures to hedge his portfolio of Rs. 3.25 crore. Assuming that the
futures price is sensitive by 1.5 times over remaining period, calculate the hedge ratio.
(AD-7 Marks Winter-10)
21: Show the incurrence of the call notice(s) on the basis of the following data relating to
trade of 2 months XYZ 400 futures.
Date of trades Futures (in Rs.)
15 Oct. 60.68
16 Oct. 58.09
17 Oct. 53.75
18 Oct. 50.00
19 Oct. 51.50
22 Oct. 52.60
23 Oct. 48.00
24 Oct. 55.07
25 Oct. 56.00
Assume that the initial margin is Rs. 6,000 and the same maintenance margin is Rs. 2,000.
(AD-7 Marks Winter-10)
22: An investor longs on a stock currently selling at Rs. 37 each. He buys the stock in 1250
numbers taking a loan at the rate of interest of 10%. He then shorts on a future contract to
be exercised at the end of one year-to-hedge this risk.
(a) Calculate the price of the future.
(b) Calculate the price of the future if there is a known income of Rs. 4,000 towards the end
of the year.
Calculate the price of the future with yield at the rate of 5%.
(AD-14 Marks Winter-10)
23: An investor into a short futures contract to sell March share for RS. 12.35 per share on
the Bombay stock exchange. The size of the contract is 400 shares. The initial margin is Rs.
3,000 and maintenance margin is Rs. 2,000. What change in the future price of the share will
lead to a margin call? Show the help of calculations.
(JSD-7 Marks Summer-09)
24: An October ABC 250 futures is available at Rs. 1,100. How many short contracts a
portfolio manager would need who wants to hedge Rs. 4 crores portfolio?
 (JSD-7 Marks Summer-09)
25: Supposing that the stock index is currently 12,200, the risk free rate of interest is 18%
per annum. Calculate the price of a three-month stock index future.
(JSD-7 Marks Summer-09)
26: If the share of a particular company is currently selling for Rs. 478 each and the risk free
rate of interest is 12% per annum. Calculate the price of a 3 – month future contract. If the
contract has 6 – month maturity what would be the future price?
(JSD-7 Marks Summer-09)