FRM Part I · FRM Exam Part I · Futures Markets
A 90-day Eurodollar-style futures contract is quoted at 96.00, implying a 4% annualized rate on a $1,000,000 notional with each basis point worth $25. A trader is long 20 contracts and the quote falls to 95.70. What is the trader's gain or loss?
The trader loses $15,000. The quote dropped 30 basis points, each worth $25 per contract, giving $750 per contract; across 20 long contracts that is $15,000. Long positions lose when the futures quote falls because implied interest rates have risen.
- AGain of $15,000
- BLoss of $7,500
- CLoss of $15,000Correct
- DGain of $7,500
Explanation
The quote fell by 0.30, which is 30 basis points. Each basis point is $25 per contract, so loss per contract is 30 x 25 = $750. For 20 contracts the loss is $15,000. A long position loses when the quote falls (rates rise). $7,500 would use only 10 contracts.
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