Hi, In the Glossary for the Core Reading, they define 'buying the basis' as 'buy cash bonds and sell futures'. I have just received my mock paper back, and the marker has commented that I've got it the wrong way round for question 1(v). I've looked at the solutions for the mock and it says 'buys futures and goes short of physical assets'. Which is the right way round? I would opt for the Core reading - buying the basis means buying physical/underlying asset and selling futures. But please correct me if this wrong and if the solution for the Mock Exam question is indeed right? Thanks.
Hi Here's a definition from a finance dictionary, which is like yours i.e. buy cash, sell futures and also known as CASH AND CARRY Trade. buying the basis definition - finance Buying an investment in the cash markets, such as wheat or S&P 500 futures, and then selling a futures position in an attempt to profit from a narrowing of the basis. Also called cash-and carry trade.
Yikes - a mistake in the mock!! Yes this is a mistake in the mock 2009. Part (v) of Q1 asks to define buying the basis, and the solution wrongly suggests that it is selling cash and buying futures. It is in fact the reverse (as it says in the glossary in the course). It involves buying cash and selling futures. I will point it out to markers ASAP, but sorry if it affected your mark. Colin
