December 2025
Intermediate to advanced
561 pages
27h 17m
English
book
International Financial Management: An Analytical Framework, 2nd Edition by Pearson
by Thummuluri Siddaiah
Content preview from International Financial Management: An Analytical Framework, 2nd Edition by Pearson
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214 INTERNATIONAL FINANCIAL MANAGEMENT
The futures price is also defined as
FSIB
t
=+−
0
where
I = Absolute amount of interest in home currency on the spot rate for the futures con-
tract period
B = Value of benefits of ownership
The term (I – B), also known as the cost of carry, is stated as
Cost of Carry =
−
+
S
rr
r
df
f
0
1
()
()
Further,
IS
r
r
d
f
=
−
0
1(
)
BS
r
r
f
f
=
+
0
1
()
By using the data in the example given above, the cost of carry is
INR
0
4
6I
NR0.88
=INR46
00604
1004
006
1004
..
.
.
.
−
+
+
=
I
= INR2.65
This is the amount of interest foregone by the investor by selling the U.S. dollars in the
futures market instead of the spot market.
B=INR46 INR1.77 ...
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