Question 10 The 3-month June 2023 dollar interest rate futures contract is currently priced at 95.50. The contract has a nominal value of 1 million dollars. (i) What is the party that sells the dollar interest rate futures contract agreeing to? (ii) If you think the 3-month spot interest rates on the dollar will be around 6% in June 2023 would you buy or sell the contract? Explain your reasoning. (iii) How much profit in dollars would you make if you take the action based on part (ii) and are proved right i.e., the 3-month interest rate on the dollar is 6% in June 2023. (iv) What 3-month dollar interest rate in June 2023 will give a break-even position for the seller of the contract? (v) What is the profit (+) or loss (-) for the buyer of the contract if the 3-month dollar interest rate in June 2023 is 2%?
Question 10
The 3-month June 2023 dollar interest rate futures contract is currently priced at 95.50. The contract has a nominal value of 1 million dollars.
(i) What is the party that sells the dollar interest rate futures contract agreeing to?
(ii) If you think the 3-month spot interest rates on the dollar will be around 6% in June 2023 would you buy or sell the contract? Explain your reasoning.
(iii) How much profit in dollars would you make if you take the action based on part (ii) and are proved right i.e., the 3-month interest rate on the dollar is 6% in June 2023.
(iv) What 3-month dollar interest rate in June 2023 will give a break-even position for the seller of the contract?
(v) What is the profit (+) or loss (-) for the buyer of the contract if the 3-month dollar interest rate in June 2023 is 2%?
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