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Interest Rate Future

Uutn914y ago
Dear Sir,

If a question gives many future prices, for instance, it is 1st Apr 2012, the company wants to borrow the loan in 4 months time, but the questions has Future prices for June 2012, Sep 2012.

Now the question is which Future price (whether June or Sep) to be chosen in order to compute the Profit/Loss.
John MoffatJohn MoffatTutor14y ago#1
If they want to borrow the money in 4 months times, then they want it on 1 August.

They should therefore deal in a September future. This is because you can close out the deal at any time up to the end of September. (A June future would have to be closed out by the end of June, but we need to finish the deal on the day the loan starts - i.e. 1 August)

To calculate the profit or loss, you compare the prices of the September future on 1 August (the day the loan starts) and on 1 April (the day we start the futures deal).
Uutn914y ago#2
Thanks a lot for your respond sir. I well understood now.
John MoffatJohn MoffatTutor14y ago#3
You are welcome :)
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