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- Publisher
- Taylor & Francis
- Copyright
- © 1999 Taylor and Francis Group, LLC
- ISSN
- 2077-0227
- eISSN
- 1029-3523
- DOI
- 10.1080/10293523.1999.11082397
- Publisher site
- See Article on Publisher Site
Abstract
JU de Villiers* Investment Basics XXXIX. The relationship between futures • * and spot pnces forward prices in foreign exchange markets, and found 1. FORWARD AND SPOT PRICES few meaningful differences. Park and Ho (1985) looked at agricultural and precious metal markets and In a perfect market, the forward price on a non found that futures prices were significantly higher than dividend paying security is determined by the cost of the corresponding forward prices. In any market where carry relationship. To own the security in the future, the underlying commodity is positively correlated with investors could either enter into a forward contract now interest rates, the buyer of a futures contract would to purchase the security at price F , in the future, or 0 1 prefer a futures contract to a forward contract [see they could buy the security now at a price Sa and keep Kolb (1997: 86) or Bodie Kane and Marcus (1999: 707- it till the future date. If they buy the security now they 708) for a discussion]. have to finance the purchase price and carry the investment to the future. Paying Sa now is equivalent In practice, the distinction between futures and forward
Journal
Investment Analysts Journal – Taylor & Francis
Published: Jan 1, 1999