question on currency futures contracts

Discussion in 'Financial Futures' started by Daal, Jul 7, 2006.

  1. Daal


    do you earn the correspondent interest investing on them?my guess is no
  2. No. You don't earn interest on futures contracts -- currency or otherwise. Likewise, you don't get the semi-annual coupon interest payments on bond futures either. However, ED or libor rates will be factored into the overall price of the currency future.
  3. If a currency were to "sit still", the interest earned on a cash position should equal the profit earned from holding a futures position that's correctly priced.
  4. Daal


    Can anyone confirm this?
  5. I can confirm this.
  6. Yes, a futures contract on a currency that offers higher rates than USD (NZD for example) will trade below the spot rate, and slowly converge by expiration. The difference = interest earned from holding spot. Reverse that for currencies with lower rates, like EUR.