Identifier: C3T3L2 · Revision: 2026-10-26 · Classification: domestic

Decision and objectives

Apply domestic and foreign rates to an FX futures comparison. The decision record must connect the exposure, cash dates and implementable contract, rather than stop at a favorable price forecast.

By the end, you can apply domestic and foreign rates to an FX futures comparison; preserve the quote currency per base currency convention; separate theoretical carry from daily-settlement effects.

Prerequisite: C3T3L1; completed Classes 1 and 2 and the Stock Market School foundation or Forex School foundation. All cases below are hypothetical; their prices, costs, rates, dates, contractual assumptions and collateral amounts are teaching inputs, not current offers.

Mechanics

For a TRY-per-USD quotation, buying dollars ties up lira while the dollars can earn dollar interest. A simple covered comparison borrows one currency, converts at spot, invests the other and fixes reconversion. The two interest rates must cover the same dates with their own conventions. A future is daily settled; a forward generally settles at maturity. Their fair values need not coincide exactly when interest rates and settlement cash are uncertain.

Price and return drivers

Illustrative F = S × (1 + rTRY × TTRY)/(1 + rUSD × TUSD). S is TRY/USD. The numerator carries lira, the denominator carries dollars; reversing the quote requires inversion, not swapping labels on the same numerical rate. Use borrowing rates on borrowed balances and deposit rates on invested balances.

Worked case

Hypothetical spot TRY 40/USD, 90/360 year for both currencies, TRY rate 40% and USD rate 4%. Carry price = 40 × 1.10/1.01 = TRY 43.564356/USD. For USD 100,000, notional maturity value is TRY 4,356,435.64. A supplied executable rate 43.60 costs TRY 3,564.36 more than the simple model for that amount; a separate TRY 1,000 service charge makes total model-to-execution difference TRY 4,564.36 before collateral funding and tax. The extra 0.035644 is a price difference per dollar, not a percentage.

Adverse case

If the actual TRY borrowing rate is 48% while the USD deposit remains 4%, the borrowing-based comparison becomes 40 × 1.12/1.01 = TRY 44.356436/USD. A strategy expecting to finance at 40% understates cost by TRY 79,207.92 on USD 100,000. Daily futures debits can additionally require funds before the dollar asset matures. A central-bank reference rate is not an executable investor borrowing rate.

Practical use

Check the currency series, quotation, cash or physical settlement and member access. Dollar quantity and lira collateral are distinct dimensions. Use bid and ask rates and calendar conventions that match the actual funding legs; round only after multiplying by quantity. Add spreads, commissions, collateral interest, FX conversion and tax. This lesson's rates are hypothetical, not observed yield quotes.

Reconcile the confirmation, position register and cash statement separately. Costs include the quoted bid/ask spread, brokerage and clearing charges, collateral or principal financing, currency conversion, custody where relevant, and exit or termination charges. A mark is not a fill. Any amount explicitly excluded below remains outside the reported result. Tax is excluded from these teaching cases: an actual comparison requires income year, investor residence and individual/corporate status, contract and acquisition dates, settlement form and effective law. The GIB guide, checked 2026-10-26, covers 2025 individual investment income, so its publication date alone does not settle a 2026 derivative liability.

Decision boundaries

The comparison fits matched-date cash flows with secured funding. It fails as a guaranteed arbitrage when one rate is indicative, access is restricted or daily settlement cannot be funded. A future does not itself provide dollars to pay an invoice unless the series delivers them; a cash-settled hedge still needs the spot purchase.

Practice and references

Exercise: spot TRY 30/USD, six months on a stated 0.5-year simple basis, TRY 30% and USD 5%. Solution: 30 × 1.15/1.025 = TRY 33.658537/USD. For USD 20,000 the model amount is TRY 673,170.73. Do not multiply the interest-rate difference directly by the spot without checking the denominator.

Takeaway: Separate theoretical carry from daily-settlement effects using the actual cash schedule, with every excluded cost and remaining exposure stated.

Reference card: viop-future. Formula: FX two-rate simple carry. Glossary: Base currency, Quote currency. Next lesson: C3T3L3. Topic test.

Sources and verification date (2026-10-26):

Related product cards: viop-currency-future.

Shared reference guide