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FRM Part I · FRM Exam Part I · Interest Rate Futures

A trader is long 40 Eurodollar futures contracts ($1 million each, $25 per basis point). The settlement price moves from 97.20 to 96.95 over one day. What is the trader's gain or loss from the move?

The price fell 25 basis points, costing $25 per point per contract, or $625 each. Across 40 long contracts the loss is $25,000. A long Eurodollar futures position loses when the futures price declines, because the implied rate has risen.

  1. ALoss of $25,000Correct
  2. BGain of $25,000
  3. CLoss of $10,000
  4. DGain of $2,500

Explanation

The price fell 25 basis points. Per contract loss = 25 x $25 = $625. For 40 contracts the loss is 40 x 625 = $25,000. A long position loses when the price falls (rates rise), so the gain option has the wrong sign.

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