Buying and selling of assets can be undertaken in any of three markets, spot, forward and futures markets. There is usually a difference in the prices prevailing in spot and forward/futures markets. The difference can be explained by the principle of no arbitrage or arbitrage free pricing principle. The arbitrage free principle is based on the costs of carry- usually referred to as the carry.
Key learning objectives:
What connects the spot price and a forward or futures price?
What is the cost of carry, and what are its components?
How do we calculate the forward price or futures fair value?
What do the terms Contango and Backwardation mean?
Introduction to Interest Rate Swaps and Use Cases
David Leeming • 17:58