Abstract

This note covers in detail the applications of interest rate futures including T-Bill futures, Eurodollar futures and T-bond futures. It explains how an investor can use these instruments to obtain either a predictable cost of funds or a predictable return on assets. The note also explains how an investor can use T-Bill futures for arbitraging. In addition, the note gives a detailed explanation of the pricing of T-bond futures and explains how one can determine cheapest to deliver bond. The objective of this note is to help the reader understand the concept and applications of interest rate futures better.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Interest Rate Futures.

Keywords

Interest rate futures, T-Bill futures, Eurodollar futures, T-bond futures, investor, instruments, cost of funds, return on assets, investor, T-Bill futures, arbitraging, pricing, deliver bond, concept, applications