A trader expects interest rates to rise. To gain from this view using interest rate futures, the trader should:
Explanation
Interest rate futures prices are inversely related to interest rates. If rates rise, prices fall. To profit from falling prices, a trader enters a short position.
Other questions
Which of the following formulas correctly represents the pricing of a futures contract for an asset with no costs or benefits?
How does the pricing formula for a futures contract change when the underlying asset has ownership benefits (I) and storage costs (C)?
What is the primary pricing mechanism difference between forward contracts and futures contracts?
In the context of mark-to-market (MTM) valuation, what happens to the value of a futures contract at the end of each trading day?
Which contract type typically entails higher counterparty credit risk?
Calculate the Basis Point Value (BPV) for a futures contract with a Notional Principal of 1,000,000 EUR and a Period of 0.25 (3 months).
If interest rates and asset prices are positively correlated, which contract generally commands a higher price?
What is 'convexity bias' in the context of interest rate derivatives?
For an asset with no costs or benefits, if the Spot Price (S0) is 100, the risk-free rate (r) is 5 percent, and the time to maturity (T) is 1 year, what is the theoretical futures price?
Which derivative instrument requires an initial margin deposit?
In the pricing formula f0(T) = [S0 - PV0(I) + PV0(C)] * (1 + r)^T, what does PV0(I) represent?
What is the equivalent position to a 'Long FRA' (Forward Rate Agreement) in terms of interest rate futures?
If interest rates and asset prices are negatively correlated, which statement is true regarding pricing?
Which formula is used for the futures price of assets involving portfolios or foreign exchange?
How is the 'variation margin' utilized in futures contracts?
If a trader expects interest rates to fall, which position should they take in interest rate futures?
Calculate the futures price if Spot = 200, PV(Benefits) = 5, PV(Costs) = 10, r = 4 percent, T = 1 year.
Which characteristic allows futures to have reduced counterparty risk compared to forwards?
If interest rates are uncorrelated with the underlying asset price, what is the relationship between futures and forward prices?
What is the formula for the 'Initial Value' (V0(T)) of a forward contract?
Regarding settlement, how do forwards and futures differ?
What is the relationship between the price of an interest rate future and the underlying yield?
Which instrument provides a 'tailored' contract to specific needs?
Calculate the futures price of a portfolio with Spot = 1000, r = 6 percent, T = 0.5 years, using continuous compounding.
In pricing futures, what does the term 'PV0(C)' stand for?
Why might a trader prefer a futures contract over a forward contract if they expect high volatility in credit markets?
What type of relationship does an interest rate forward price have with yield changes?
A 'Short FRA' is equivalent to being a:
If a futures contract has a notional of 2,000,000 and the period is 0.5, what is the Basis Point Value?
Which contract involves the physical or cash settlement based on terms set at inception, typically occurring only at maturity?
In the context of futures, what does 'variation margin' represent?
If $S_0 = 150$, $r = 10$ percent, $T = 2$, and there are no costs or benefits, calculate the futures price.
Which of the following leads to a preference for futures over forwards (Futures > Forwards)?
How does the 'Price-Yield Relation' differ between Interest Rate Futures and Forwards?
What is the primary purpose of the clearinghouse in futures markets?
For an asset with storage costs of PV = 5 and Spot = 100, what is the Net Cost of Carry effect on the futures price?
Which contract type is described as having 'liquidity' as a key feature due to secondary market trading?
If a trader enters a Long FRA, they are essentially:
Calculate the futures price: S0=50, r=0.05, T=1, PV(Income)=2, PV(Storage)=0.
What does the term 'variation margin' specifically refer to?
Which scenario results in a preference for Forward contracts over Futures?
If the risk-free rate is 8 percent and the spot price is 100 with no costs/benefits, what is the 6-month futures price?
Interest rate futures allow investors to:
What is the formula for continuous compounding futures pricing?
In the MTM comparison table, which contract has 'Fixed price F0(T) at contract initiation'?
Why is the cumulative MTM gain/loss on a futures contract considered similar to a comparable forward?
If a trader wants to hedge against falling interest rates using FRAs, they should:
Which factor creates a divergence between interest rate futures and forward prices known as 'convexity bias'?
If S0 = 100, r = 0.05, T = 1, PV(C) = 2, PV(I) = 0. What is the futures price?