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. The Shur-Gro variable annuity uses an AIR of 3% for those contract holders who are ...

    The correct answer is b. Any time the actual growth rate of the separate account exceeds the account’s AIR, the payment will ...
  2. Sometimes investment banking firms allocate shares of hot issues to the personal ...

    The correct answer is a) Spinning is the act of selling hot issues to the personal accounts of corporate officers which in ...
  3. Donald has been putting aside money for his retirement into a Roth IRA for six years.  Although ...

    The correct answer is A) In a Roth IRA, there is no required distribution date as there is in a traditional IRA.
  4. A 7-year, 6% coupon callable bond is currently trading at 96.25.  The ...

    Free info on financial certification exams including study guides, exam questions, and much more!
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. Professionals

    Should You Add A Securities License ...

Trading Center