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. Variable Coupon Renewable Note - VCR

    A renewable fixed income security with variable coupon rates ...
  4. B

    A Nasdaq stock symbol specifying that the stock is Class B shares ...
  5. Short Sell Against the Box

    The act of short selling securities that you already own. This ...
  6. Medicare Hold Harmless Provision

    A legal statement prohibiting an increase to Medicare B premiums ...
Hot Definitions
  1. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  3. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  4. 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 ...
  5. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  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