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If you purchase a Stock today in USD you will model that it has some value in USD in the future, $$ S_{t, usd} = S_{0, usd} + W_{t, usd} $$ where $W_{t, usd}$ is some random motion, possibly with drift, such that $E[W_{t, usd}] = \mu$. Ideally you would exchange $S_{t, usd}$ at maturity, so this is the amount of notional that should be translated to ...


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The way I find helpful to think about this is that exchanges are mechanisms of information discovery (the quote that is formed signals agreement between the two parties). In a futures exchange (which I believe is primary only) the key information that is being discovered is (... drumroll ...) future (...) price of a particular commodity / financial ...


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While the answer seems to be clear, the reason why this correlation to interest rates was important is due to the posting of margin. The book you're reading was written prior to Dodd-Frank, Swaps clearinghouses and collateral collection for all forward contracts. Today, presuming both products are collateralized via margin, there will be no difference in ...


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The easiest way to understand this issue is to consider a basket holding opposite positions in the two derivatives. tl;dr: The futures have a linear profile whereas the forward is convex due to discounting, so there is a bias priced in by the market Building a simple, par basket So we are long some interest rate futures and short some Forward Rate ...


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For your first doubt: the futures price is proportional to the asset price, so they are perfectly correlated. For your second doubt: if futures price is positively correlated to interest rates, the buyer of a futures contract will (tend to) make a gain when interest rates are higher. The gain is immediately realised through margin calls, and invested at ...


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