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  1. Dear John,
    what is the Libor rate ?
    And why are we considering only libor rate while estimating basis point and not the extra 1 percent as barbara is paying 1 percent extra ? I dont get this ,, please explain

  2. Hello Sir,

    Thanks for this good lectures. Can you please clarify this for me. This is your reply to a comment on the previous lecture

    “Three month futures do not have to be closed after three months – the three months simply refers to how profits or losses are calculated.
    March futures must finish but the end of March; June futures by the end of June; sept futures by end Sept, and Dec futures by end Dec.
    There are always the four to choose from which means you can deal with a loan starting up to a year away.”

    From this I understand we have quarterly futures. But from this example we have Jan. Feb. and March future prices. Can we have futures for every month being traded?

    • Because of the basis. Futures prices and the equivalent interest rate are different – the difference is the basis and we assume this difference falls linearly to zero over the life of the future (exactly the same as happens with currency futures – I assume you did work through the lectures on managing foreign exchange risk first).

      Read what is written under ‘additional points’ immediately about the example in the lecture notes.

    • Have you watched this and the earlier lectures on futures, because I do explain!

      We divide by 100 because the difference in the futures prices is effectively an annual %. We divide by 4 because they are three month futures and three months is 1/4 of a year.
      We always divide by 400 as a result.

  5. Why do we use the libor rates of 6 % and 9 % to estimate the futures price ? Why not use the interest rates of 7 % and 10 % ?

    And thanks for your lectures. These are really helping me a lot

    • Because according to the question the current LIBOR is 6% and part (a) of the question says to assume that LIBOR has risen to 9%.

      Have you downloaded the free lecture notes that are needed to watch the lectures?

  7. Dear Sir, to calculate the unexpired basis in interest rate futures we perform: future price- interest rate. But in currency futures is it the other way around? (Spot- Future price) ?

    • It doesn’t matter which you take from the other!!
      All that matters is that if the current futures price is lower than the current spot, then it will stay lower than spot. If it is higher then it will stay higher.

  9. Please can someone help me?
    From the Link below

    https://www.accaglobal.com/en/student/acca-qual-student-journey/qual-resource/acca-qualification/p4/past-exam-papers.html

    Global Pilot paper – from June 2013 exams
    Question 2 – Alecto Co.

    In the solution, when calculating the profit/loss of the futures deals for both interest rate futures and options on interest rate futures, the calculation was not divided by 400 as explained by the tutor here, can you please explain why this was the case?
    Thanks

    • The answer has used ticks, where the 400 has already been taken into account. You do not need to use ticks, but it gives the same answer either way.

      One tick is a change of 0.01, so the profit or loss on one contract changing by 0.01 is 1M x 0.01 / 400 = $25

  15. in this June 2010 Mock they said they would not want the interest receivable to decrease by $2500 from the amount that would be paid on the current interest

  16. Can some assist me what will be the Interest Receipt on Futures if Example was to Invest the same amount but the inerest rates Fall by 1% and the Futures price move by 0.85%,this example is similar to one on the Kaplan Mock June 2010 and when i try it am geting a total of$11,000.00 and 80,000.00 giving a total of $91,000.00 instead of $97,000.00 that the solution is giving

  17. Please could someone explain what might be the problem, I have not been able to view P4 Lecture 3 on Interest Rate Futures beyond )7:39 minutes. The lecture stops at 07:39min each time i played it where as its total time is 14:46 minutes.

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