You are expecting interest rates to rise over the next few months ...

By Investopedia Staff AAA
Q:
You are expecting interest rates to rise over the next few months. On 12/15/0X, T-bill futures contracts are selling for 91.

1. How could you make money with your expectation?
2. Come March, T-bill futures will be selling for:
A. 90 or
B. 92
If you sold 2 contracts 12/15/0X, what was your profit and loss for a vs b, ignoring transaction costs, commissions, etc.

A:

1. Sell March T-bills short. When the rates rise, cover your own shorts by purchasing a like number of contracts.
2. a = 91-90 = 100*$25*2 = $5,000 gain
b = 91-92 = -100*$25*2 = $5,000 loss

Have a Financial Question?

RELATED FAQS

  1. You are analyzing a small company's financials, and notice that the bookkeeper made ...

    The best answer is 2. 1 is tempting, but wrong, because an asset "sounds like" a debit but the depreciation expense here ...
  2. Which of the following statements is (are) true with respect to the key characteristics ...

    The correct answer is: a) (I) is incorrect. The rule is that if the Standards are more strict than local laws, yet they are ...
  3. A company issues some shares in order to finance the purchase of some more production ...

    The correct answer is: a) This transaction will increase the assets of the company and its equity by the same amount. Hence, ...
  4. Which one of the following uses of the "CFA" trademark is correct ...

    The correct answer is e. The correct use the CFA abbreviation is one the most important things to know as a CFA candidate. ...
RELATED TERMS
  1. Series 79

    A examination to ensure a candidate is qualified to become a ...
  2. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  3. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
  4. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  5. Series 23

    An exam offered by the Financial Industry Regulatory Authority ...
  6. Series 28

    An exam given by the Financial Industry Regulatory Authority ...

You May Also Like

Related Articles
  1. Insurance

    Municipal Bond Tips For The Series 7 ...

  2. Retirement

    6 Proven Tips For Series 6 Success

  3. Insurance

    Tips For Passing The Series 6 Exam

  4. Professionals

    Banker Or Broker: Which Career Is Right ...

  5. Professionals

    Breaking Down Financial Securities Licenses

Trading Center