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Chapter 11

Interest rate futures

4.1 Key features

An interest rate futures contract fixes the interest rate on a future loan
or deposit.

To understand whether you need to buy or sell contracts, interest rate
futures are best understood as involving the sale or purchase of bonds:

 borrowing money equates to issuing (selling) bonds, so sell futures
to set up the hedge

 depositing funds equates to buying bonds, so buy futures to set up
the hedge.

'Futures Price' = 100 – interest rate.

Size of loan Duration of loan
Number of contracts = ×
Size of contract Duration of contract

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