A Note On Interest Rate Futures

CONCLUSION

Futures are among the oldest financial instruments. This concept note attempts to help readers understand the applications of interest rate futures. Interest rate futures are used for hedging, spreading and arbitraging purposes. Corporates can use these instruments to hedge fixed income assets against the risk of interest rate volatility. By understanding how interest rate futures contracts work and how prices are quoted, an investor can create a hedge against the exposure to interest rates.

EXHIBIT I

LIST OF ACTIVELY TRADED SHORT TERM INTEREST RATE FUTURES

US Exchanges

a) 3-month Eurodollar (Chicago Mercantile Exchange)
b) 90-day T-Bill (CME)
c) 1-month LIBOR (CME)

Foreign Exchanges

a) 3-month Euroyen SIMEX, Singapore
b) 3-month Eurodollar LIFFE, UK
c) 3-month KLIBOR (Kuala Lumpur Interbank Offered Rate), MME
d) 3-month HIBOR Hong Kong Future Exchange

Source: Financial Risk Management, IUP.

EXHIBIT II

LIST OF ACTIVELY TRADED LONG TERM INTEREST RATE FUTURES

US Exchanges

a) T-Bonds (15 years) Chicago Board of Trade (CBOT)
b) T-Notes (10 years) CBOT
c) T-Notes (5 years) CBOT

Foreign Exchanges

a) Japanese Government Bonds (10 years)
b) UK Government Bonds
c) Australian T-Bonds

Source: Financial Risk Management, IUP.