FRM Part I · FRM Exam Part I · Interest Rate Futures
A trader is long 10 three-month Eurodollar futures contracts (USD 1 million notional, price quoted as 100 minus the annualized rate). The quote falls from 96.50 to 96.38. What is the trader's profit or loss on the position?
The trader loses USD 3,000. The price fell 12 basis points, each worth USD 25 per contract on a three-month USD 1 million notional, so 12 times 25 times 10 contracts is 3,000. A long position loses when the quote falls.
- ALoss of USD 3,000Correct
- BGain of USD 3,000
- CLoss of USD 12,000
- DLoss of USD 300
Explanation
The quote fell 0.12 = 12 basis points. Each basis point is worth 1,000,000 x 0.0001 x 3/12 = USD 25 per contract. Loss = 12 x 25 x 10 = USD 3,000 for the long. USD 12,000 uses USD 100 per bp, USD 300 ignores the contract count, and a gain has the wrong sign.
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