I am trying to figure out how currency futures react to payments of interest. I'm aware that the futures price is adjusted and decays... but how, and when? For example, excluding transaction costs, would it be possible to take a forex position @ 5pm EST and an offsetting futures position simultaneously without the futures price adjusting? (5pm EST is when most US banks allocate interest payments) I'm just trying to figure out how the currency futures price reacts to Forex Interest payments... if at all.. Any ideas?
The futures will trade at a discount[premium] to spot if the base currency swap is positive[negative]. The holder of a long position in 6EH8 receives the +swap as a discount to the value at LTD. Think of it in terms of a zero-coupon bond in which the yield is embedded as a discount to value at maturity.
Atticus, Thank you for the reply. But I think I already understand what you mean. My question basically is: is it possible to see the futures price react when interest is paid on spot forex? I would think it would be noticable especially on Wednesdays when forex gets a 3 day interest credit/debit. Is it?
Trading in Globex currency futures is closed from 5-6 pm ET. The most helpful thing for you to do would be to watch closely this real-time Merc applet (choose your contracts and expiration months) and answer for yourself: http://equivalentsrdc.cme.com:443/index.html Good luck with the free lunch.