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Can I assume that borrowers sell futures and lenders buy future? In the short to hedge against interest rate risks
Also can a borrower buy a future for longterm?/ For profit assuming the interest rate is going to fall. Does it fall under interest rate risk or is related to nvestment decision? I find this chapter super hard. Don’t know why more i study, more confusion arises
As is stated in bold in our free lecture notes (and as explained in my lectures working through the chapter), a borrower will always sell interest rate futures and a depositor will always buy interest rate futures.
Anybody can buy interest rate futures, but there is no point in a borrower buying them. They are used to hedge against changes in the interest rates and are nothing to do with investment decisions.
I explain exactly how they work in my free lectures, and work through an example to make it clear (even though as I have told you before, calculations cannot be asked in Paper FM).
Have you actually watched the lectures (and if so, did you watch the earlier lectures on foreign exchange risk management first? Because the logic behind the use of futures is the same.)
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