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. What factors influence the price of treasury bills?

    Take a deeper look at some of the factors that influence the prices of Treasury bills, such as monetary policy set by the ...
  2. How do treasury bill prices affect other investments?

    Find out how the price and yield of Treasury bills can impact the level of risk investors are willing to accept in their ...
  3. How do I buy treasury bills?

    Discover how Treasury Bills (T-bills) are a safe-bet investment for short-term returns. The percentages on the returns vary.
  4. How are treasury bill interest rates determined?

    Find out why interest rates for U.S. Treasury bills are determined at auction and how so-called "competitive" bidders impact ...
  5. I have a short period of time (1 year or less) during which I will have money to ...

    If you only have a short period of time in which to invest your money (i.e. less than one year), there are several investment ...
  6. Are treasury bills a good investment for retirement savings?

    Find out whether Treasury bills (T-bills) are a smart investment for retirement, and learn why opportunity cost is a significant ...
RELATED TERMS
  1. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
  2. Coupon Pass

    The purchase of treasury notes or bonds from dealers, by the ...
  3. Broad Liquidity

    A category of the money supply which includes: all funds in M3, ...
  4. Short Covering

    Buying back borrowed securities in order to close an open short ...
  5. Variable Coupon Renewable Note - VCR

    A renewable fixed income security with variable coupon rates ...
  6. Forward Rate Agreement - FRA

    An over-the-counter contract between parties that determines ...

You May Also Like

Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center