IN1 Spot and forward index markets

Two stock indices and a forward on the second trade together. The index values are drawn at the close.

Objective

Finish with as much wealth as possible. Assessed on final wealth.

What it shows

• A spot market and a forward market for one index side by side.
• The forward's price as the spot price carried to the close at the 5% interest rate.
• An index as a basket that nobody can value alone.

Watch out for

• A forward priced off the wrong index, IDXA instead of IDXB.
• Entering a forward costs nothing, which makes the position look free.
• The forward settles against the value IDXB itself settles at, not its last trade.

Who takes part

• Trader — every student. Trades IDXA and IDXB, two indices, and IDXBF, a forward on IDXB.

Class size

Ten to forty students in one role. Three securities are priced by trading, so twenty or more keeps each book active.