How Spot–Futures Trades Lock In a Yield

Summary

The document explains why currencies and futures can be treated as assets with known yields. The key idea is that an investor can combine a spot position with an offsetting forward or futures position, setting the future sale price in advance. For a currency example, buying the currency at spot and selling it for future settlement locks in the price difference over the holding period. The note describes the implied return as the futures–spot price difference relative to spot for the period until settlement.

This is a conceptual explanation of a carry-style relationship, not a worked market example or a derivation from interest-rate parity. It gives no treatment of transaction costs, funding, collateral, taxes, or basis risk, all of which can affect the realized return. The quoted price difference is for the stated settlement horizon and should not be read as an annualized yield without adjusting for time. The discussion also does not explain how rates or contract details determine futures prices.

Key ideas

• A spot position paired with an offsetting forward or futures position can fix a future sale price.
• The price difference between futures and spot implies a return over the contract’s settlement period.
• Currency and futures exposures can therefore be discussed in terms of a yield that is locked through a trade.
• The stated yield concept omits costs, funding effects, and any adjustment needed to annualize the return.

Tags

# Why currencies and futures contracts can be considered as assets with known yields?


# Why currencies and futures contracts can be considered as assets with known yields?












I understand why stock index can be considered as assets with known yields due to the dividends.

But why currencies and futures contracts can also be considered as assets with known yields?

In the currency, the known yield is the foreign risk-free interest rate. In the case of a futures contract, it is the domestic risk-free interest rate.

## Answer by AlRacoon (score 1)

https://quant.stackexchange.com/a/44286

Currencies and futures can be considered assets with known yields in that one can set up a trade and lock in a yield. For example, one can buy a currency spot and sell the currency future (typically forwards are used), to lock in a yield. The yield will be (Future Price - Spot)/Spot for the period between spot and future settlement dates.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.