FRM Part I · FRM Exam Part I · Interest Rates
A Eurodollar-style interest rate futures contract quoted at 96.00 has a notional of USD 1 million for a three-month rate. The quote rises to 96.20. What is the change in value for a long position in one contract?
The long position gains USD 500. A rise of 0.20 in the quote is 20 basis points, and each basis point on a USD 1 million three-month contract is worth USD 25, so 20 times 25 equals 500.
- AGain of USD 500Correct
- BLoss of USD 500
- CGain of USD 2,000
- DGain of USD 5,000
Explanation
A price move of 0.20 equals 20 basis points of annualized rate. Each basis point is worth 1,000,000 × 0.0001 × 0.25 = USD 25. So 20 × 25 = USD 500 gain for the long. A loss is wrong because rising price means falling implied rate, which benefits the long.
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