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Dear Sir,
With regard to interest rate futures, there’s this line:
“Selling a future creates obligation to borrow money and obligation to pay interest.”
Can you give an exact practical example to make me understand. Because I imagine selling something we always get money or something like that. I know I’m wrong but I need some clrarity please. I also know it isn’t covered in depth in f9 but I would like to understand it thoroughly Because I’m unable to ‘just remember’ it.
Thank you in advance.
Regards,
Rajvir Singh Oberai.The statement is not really correct! I do explain how futures work in my free lectures on the management of interest rate risk.
As you say, you are not required to understand the full working for Paper F9. If it worries you then by all means watch my lectures on this for Paper P4 – in Paper P4 you are expected to show the full calculations relating to interest rate futures.
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