Discussion — Lecture 18: Forwards and Futures

This session covers Lecture 18: Forwards and Futures

The lecture is somewhat of a sequel to Lecture 8, which talked about lining up the timings of cashflows and cash commitments. People can use forwards and futures to match up the time pattern of their cash inflows with their cash commitments. Our exploration of forward contracts (and FRAs) and futures also serves as an entry point for making sense of other types of derivatives.

The finance perspective says that "the future determines the present." Interest rates right now are determined partly by people's expectations of the future and commitments for the future.

We investigate the puzzle of why cash and carry arbitrage can be profitable. If a price isn't what you think it should be, someone is probably paying for something. And in this course, that something is usually some form of liquidity.

Lecture Notes

Lecture 18 Discussion Thread