A Note on Interest Rate Futures

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

Case Details:


Case Code : MISC011 For delivery in electronic format: Rs. 300;
For delivery through courier (within India): Rs. 300 + Rs. 25 for Shipping & Handling Charges


Case Length : 15 Pages
Period : -
Pub Date : 2003
Teaching Note : Available
Organization : -
Industry : Banking & Financial Services
Countries : -


This note covers in detail the applications of interest rate futures including T-Bill futures, Eurodollar futures and T-bond futures. It explains how an investor can use these instruments to obtain either a predictable cost of funds or a predictable return on assets. The note also explains how an investor can use T-Bill futures for arbitraging. In addition, the note gives a detailed explanation of the pricing of T-bond futures and explains how one can determine cheapest to deliver bond. The objective of this note is to help the reader understand the concept and applications of interest rate futures better.


  Page No.
Introduction 1
Defining the Terms 1
Hedging Interest Rates Risk with Interest Rate Futures 2
Short Term Hedging (Hedging the Risk of a Rise in Interest Rates for Obtaining a Predictable Cost of Funds) 2
Long-Term Hedging (Hedging the Risk of a Fall in Interest Rates for an Investment) 3
Arbitrage with T-Bill Futures 4
Spreading with Interest Rate Futures 6
Treasury Bonds Futures 7
Pricing of T-Bond Futures Contracts 8
Quoted Futures Price 9
Conclusion 11
Exhibits 12


Interest rate futures, T-Bill futures, Eurodollar futures, T-bond futures, investor, instruments, cost of funds, return on assets, investor, T-Bill futures, arbitraging, pricing, deliver bond, concept, applications

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