Please explain why Dollar/Euro FX futures contracts for settlement in 
March 2005 are priced slightly higher than the December 2004 contract.
These currency futures contracts trade on the Chicago Mercantile Exchange.

I suspect the answer is in interest rates. Please supply the 
applicable theoretical formulas. If you are going to quote the 
Black-Scholes formula in your answer, please demonstrate the
actual numbers that need to be plugged in.

I'm looking only for theory-based (e.g. Black-Scholes) insights, not
market related items like trade deficits etc, unless that turns out 
to be the dominant factor for explaining this.

Thanks!

Futures contracts have no direct relationship to interest rates or a
black scholes model of option pricing.

A futures contract is simply an obligation to purchase X amount of a
commodity on a fixed date(the value of the contract on the settlement
date--which will correspond to the true market value on the closing
date).

Because, the value of euro's in your case has not been determined, the
price of the futures contract will differ greatly from the current
exchange rate.  Although usually the futures price is higher than the
current market, this does not have to be so, and quite often isn't.

That said, valuing futures contracts often takes into account interest
rates, and other market forces.

A Long Futures position has the exact same mathematical profile
as a combination Long Call + Short Put. I think this is covered
either in Black & Scholes' original work or in McMillan's extensive
followup.

Are you saying that the Interest Rate components from B&S cancel
each other out? This I'm having a hard time conceptualizing and
would like to see the math worked out.

Also, although the future value of the Euro has not yet been
determined, the B&S formulas apply Normal Distribution and past
volatility to predict likely ending prices starting from today's
price.

I believe the futures on eruo/dollars are determined mostly by the big
players, most of whom use a wide variety of criteria, so many news
items affect the price slightly which can add up to big money if
several news items push the rate the same way. My guess is statagies
for puts and calls and dirivitives and other commodities are of
limited value applied to Euro/dollar trading.   Neil

I believe news can affect the market, but news will NOT affect
the mathematical relationship between futures expiring at
various different months. The various expirations move 
together. They only diverge when underlying variables like
interest rates start to change.

This must be like the relationship between a Call and a Put:
the news will move them both, but the relationship between
them is mathematically rigid (and arbitrage traders keep it
that way in the market).