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Learn about the following:

How these contracts work and their specifications. Simple hedges with these contracts. Simple trades with these contracts. How futures are related to swaps through arbitrage.

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Course Summary

Short term interest rate futures

How these contracts work and their specifications
Simple hedges with these contracts
Simple trades with these contracts
How futures are related to swaps through arbitrage

40 minutes

8 question multiple choice test

1. Short term interest rate contracts

The Eurodollar contract
Implied forward rate
Buying and selling
Tick value
Gains and losses from an open position

2. Hedging use

Borrowing cash in the future
Example, hedging with futures
Outcomes if interest rates rise or fall
Taking risk: example, a spread trade
Outcomes from a change in the futures price
The 3 month Euribor contract
The short sterling contract

3. Arbitrage

Using a “strip” of futures to hedge forward Libor
Example, calculating the 1 year swap rate
How futures and swaps can be arbitraged

4. Summary

Self test no results or score retained

5. Test

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Gap reports show you the interest rate risk you are running in your balance sheet. They put the assets and liabilities into time buckets in accordance with their interest rate repricing. From this simple approach you can obtain a table or graph of the risk being run. This normally includes a profit and loss figure that results from moving the yield curve. Gap limits are also applied in order to keep the interest rate exposure within risk tolerence. Gap reports aren't new; they are widely used and have both strengths and weaknesses. Let's find out more.