d Assuming that the Tayir TuD the policy rate when the inflation gap is 296, the

ID: 2781828 • Letter: D

Question

d Assuming that the Tayir TuD the policy rate when the inflation gap is 296, the output gap is-2% and R" is the policy neutra computed in question (c) above. QUESTION THREE a. What are the differences between an interest rate futures contract and an interest rate forward contract A March 2015 futures contract is priced at 115 points for a US$100,000 a uS 2033 Treasury bond. The expected bond price on the delivery date is US$110,000. What is the expected futures contract price b. on this date? c. Wh at happens to the profit of the seller and the buyer of the interest rate futures contract if the bond price turns out to be US$118,000 on the delivery date? d. What is the result in (c ) above if the buyers and sellers had instead bought futures options at a premium of $1000

Explanation / Answer

Answer 3A)

Difference between Interest Rate Futures and Interest Rate Forward Contracts

Interest Rate Futures

Interest Rate Forward

They Trade on Exchanges

Trade in OTC Markets

Are Standardized

Are customized

Identity of counterparties is irrelevant

Identity is relevant

Regulated

Not Regulated

Marked to Market

No Marking to market

Easy to terminate

Difficult to Terminate

Less Costly

More Costly