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Baffled by part b of this one if anyone can help me please?
Contract has a notional value of $500,000 and movement from 92.70 to 91.00 is 170 ticks, therefore 0.01 = 1 tick.
It then states in the answer that each tick is worth $12.50.
How does $500,000 x 0.01 = $12.50?
Many thanks
It doesn’t 🙂
With interest rate futures, we always divide the movement in the futures price by 400 (4 because they are always three month futures, and 100 because it is a percentage)
So the profit or loss on 1 contract with a movement of 1 tick is:
$500,000 x 0.01 / 400 = $12.50
(If you watch my free lecture on this, I do explain the logic behind it all with examples (and also explain why, in fact, you never actually need to bother about ticks in the exam at all 🙂 )
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