05 Jan
Interest Rate Futures | Derivatives | CA Final SFM
When Forward Interest Rate Agreements are regulated through the “Exchange”, it will become Interest Rate Futures. However, the mechanism of IRF is different from FRA. The system is designed in a manner that interest rate is made up as a marketable product. The following example, will clarify as to how interest rate futures are quoted in the exchange.
Example
A 3 month Futures contract in Indian Rupees is presently quoted as ` 92.6, with respect to interest rate. This means buying or selling such interest rate futures will indirectly entitle the parties to borrow or lend money at 100 – 92.6 = 7.4% per annum interest.
Buying an interest rate futures result into investing at such interest rate and selling the interest rate futures results into borrowing at such rate.
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