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  1. A company wishing to borrow in the future could hedge by selling an FRA so would need an IRG that provides a call option on FRAs.(In the kaplan text it is stated as this)

    In the lecture video it says,
    Call option – to earn interest at strike rate (ie for Deposits)

    Apologize in advance if i am getting it completely wrong. Please clarify the call/Put option.

  2. At 16 mins, the lecture says to buy now at 95, and sell later at 93.
    Surely that would result in a loss of 2? Regardless if you’re borrowing or depositing…

  3. You are incorrect, both in what you say and what you accuse me of saying. You need to look carefully at the lecture again.

    If you are borrowing, you want to be protected against an interest rate rise – say from 3% to 5%. That would change future prices from 97 to 95. To make a profit to compensate for the extra interest, sell now at 97 then buy later at 95.

    If you are depositing money you want protection against interest rate falls – say from 5% to 3%. That would change futures prices from 95 to 97 To make a profit that compensates for the lower interest, buy now at 95 and sell later at 97.

    So, whether you buy or sell first depends on whether you are borrowing or investing.

    • Sir at 15.57 video. in the case of borrowing (interest rate increases from 5% to 7%), It says Buy now at 95 and sell at 93.
      In case of borrowing we should sell now at 95 and buy at 93 right?

  4. In explaining the working of interest future. The lecturer gives a wrong explanation that you shall buy interest future now and sell it later to hedge against potential interest rate. Apparently, the opposite is true.

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