FRM Part I · FRM Exam Part I · Interest Rate Futures
A trader is long 10 contracts of three-month SOFR futures, each with a notional of $1,000,000 and quoted as 100 minus the annualized rate. Each basis point move changes the contract value by $25. The quote falls from 96.25 to 96.10. What is the trader's profit or loss?
The trader loses $3,750. The quote fell 15 basis points, and each basis point is worth $25 per contract, giving a $375 loss per contract. With 10 long contracts, the total loss is $3,750, because the long loses when the quoted price falls.
- ALoss of $3,750Correct
- BGain of $3,750
- CLoss of $375
- DLoss of $37,500
Explanation
The quote falls 0.15 = 15 basis points, so the long loses 15 × $25 = $375 per contract. For 10 contracts, the loss is $3,750. The $375 option forgets the number of contracts, and the gain option gets the direction wrong since a long position loses when the quote falls.
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 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…
- A Eurodollar futures contract (face value $1 million, 3-month LIBOR underlying) is quoted at 96.50. Using the standard convention, what is t…