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FRM Part I · FRM Exam Part I · Interest Rate Futures

A Eurodollar futures contract (face value $1 million, 3-month LIBOR underlying) is quoted at 96.50. Using the standard convention, what is the contract's implied 3-month rate and the price change in dollars for a 1 basis point move in the quote?

The implied rate is 3.50% annualized because the quote equals 100 minus the rate. A one basis point move is worth $25, since 0.0001 times $1 million times one quarter equals $25. Using $100 would wrongly ignore the three-month accrual period.

  1. A3.50% annualized; $25 per basis pointCorrect
  2. B3.50% annualized; $100 per basis point
  3. C3.50% quarterly; $25 per basis point
  4. D96.50% annualized; $25 per basis point

Explanation

The quote is 100 minus the annualized rate, so the rate is 100 - 96.50 = 3.50%. One basis point is 0.01% of $1,000,000 = $100 per year, and for a 3-month period this is $100 x 0.25 = $25. The $100 option ignores the quarter accrual.

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