Assume no transactions costs exist for any futures or forward contracts. The price of British pound futures with a settlement date 180 days from now will:
A)definitely be above the 180-day forward rate.
B)definitely be below the 180-day forward rate.
C)be about the same as the 180-day forward rate.
D)none of the above; there is no relation between the futures and forward prices.

Question

Quizplus · Accepted Answer

Assuming no transactions costs exist for any futures or forward contracts, the price of British pound futures with a settlement date 180 days from now should be about the same as the 180-day forward rate. This is because both futures and forward contracts are essentially agreements to buy or sell an asset (in this case, British pounds) at a specific price and date in the future. While there may be slight differences in how the contracts are structured and traded, both ultimately reflect expectations about the future value of the underlying asset. Therefore, absent any significant market changes or disruptions, futures and forward prices should be roughly similar. However, it's worth noting that in practice, transactions costs (such as bid-ask spreads, commissions, and margin requirements) can impact the relative pricing of futures vs. forward contracts.

Assume No Transactions Costs Exist for Any Futures or Forward