# Interest rate futures Example 4 continued

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1. says

Thanks for the lecture. Please explain what is lock in rate and we would use it. Also if tick value is given do we use this to calculate profit and loss?

• says

On the date of the transaction, we calculate the interest at what the rate is on that date, and calculate the profit or loss on the futures.

Because we are able to estimate the basis risk, we can calculate an effective interest rate on the date of the transaction that give the net effect (of using the actual rate and adding or subtracting the profit/loss on the futures). This is called the lock-in rate.

If the tick value is given, then you can use this to calculate the profit or loss on futures, but you do not actually need to use it – you can calculate the profit or loss in the normal way (it will give the same result). I never bother using ticks

2. says

Very good way of teaching. Wonderful lectures, easy to understand. It clarifies my confusions about very difficult topic about derivatives. God bless you.

3. says

Can I ask how to calucate the profit or loss on the interest rate future when there’s a tick value involved? thanks.

• says

You never actually need to use ticks.

However, if you want to use them then you calculate the difference between the buy and sell prices in numbers of ticks (a tick is 0.01), multiply by the numbers of contracts, and then multiply by the tick value.