FRM Part I · FRM Exam Part I · Interest Rates
A SOFR-style 3-month futures contract has a notional of USD 1,000,000 and pays USD 25 per basis point (0.01) move in the quoted rate for a 3-month period. A firm is short 40 contracts. The quoted futures price moves from 96.50 to 96.20. What is the firm's gain or loss?
The firm gains USD 30,000. The futures price fell by 30 basis points, each basis point is worth USD 25 per contract, giving USD 750 per contract, and a short position across 40 contracts profits from the decline.
- ALoss of USD 30,000
- BGain of USD 30,000Correct
- CGain of USD 7,500
- DGain of USD 12,000
Explanation
Price fell 0.30 = 30 basis points. Short gains USD 25 x 30 = 750 per contract. For 40 contracts: 750 x 40 = USD 30,000 gain. Loss option has wrong sign; 7,500 uses 7.5 per bp error.
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