the relation between currency futures and spot fx quotes?

Discussion in 'Forex' started by clearpicks, May 3, 2007.

  1. 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.
  2. Panurgo


    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
  3. Panurgo,

    Where can I get the value of market consensus rates at maturity?

  4. Panurgo


    you can look at swap prices of similar maturity
  5. Clearpicks, the CME has already done all the heavy lifting for you...

    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