Question of the Week

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.


Answer:

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

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