FRM Part I · FRM Exam Part I · Interest Rate Futures
A Eurodollar-style futures contract is quoted at 96.00. Which implied three-month interest rate and approximate value change per one basis point move apply to a $1 million contract?
The quote implies a 4.00% annualized three-month rate, from 100 minus 96. Each basis point is worth $25 on a $1 million contract because it applies for only a quarter of a year: 1,000,000 × 0.0001 × 0.25.
- A4.00% annualized; $25 per basis pointCorrect
- B4.00% annualized; $100 per basis point
- C96.00% annualized; $25 per basis point
- D4.00% annualized; $250 per basis point
Explanation
Implied rate = 100 − 96 = 4.00% annualized. One basis point is 0.0001 × 1,000,000 × 0.25 = $25 for a three-month period. Using a full year would give $100, which is wrong for a quarterly contract.
Did you get it right without looking?
One question tells you little. A timed set on Interest Rate Futures shows your real accuracy, how long you take and where you lose marks.
More Interest Rate Futures questions
- A portfolio has a DV01 of $30,000 per basis point and is hedged by shorting 500 futures contracts, each with a DV01 of $60 per basis point (…
- A portfolio manager holds $20 million of bonds with a modified duration of 5.0. Treasury bond futures trade at a contract value of $125,000 …
- A fund manages a $100 million bond portfolio with a modified duration of 7.0. The manager wants to reduce the portfolio duration to 3.0 usin…
- Which of the following is a key limitation of duration-based hedging with interest rate futures?
- Using the convexity formula forward rate = futures rate - 0.5 x sigma^2 x T1 x T2, a 2-year Eurodollar futures (T1 = 2.0, T2 = 2.25) is quot…
- Treasury bond futures use conversion factors computed as if all deliverable bonds yield 6% per year. When market yields for all maturities a…