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Solution to Assignment 5: Interest Rate Futures Appendix- More Explanation

2. IMM Index = 100.00 – YieldIMM stands for International Monetary Market

If yield equals 0.75%, the IMM index is quoted as 99.250

IMM Index = 100 - 0.75% = 99.250

If the value of the futures contract should fluctuate by one basis point (0.01%), this equates to a $25.00 movement in the contract value.

Basis point value = Face Value * (days/360) * 0.01%

Based on a $1 million face value, 90-day T-bill futures

Value for 1 bp move = $1,000,000*(0.0001*90/360) = $25

4. Delivery Process

From First Position Day until the end of the delivery month, all clearing firms are required to make daily report to CME Clearing of all open long positions in the expiring contract

The first business day of the expiring contract

First Position Day: Two business days prior to the first day allowed for delivery

First Intention Day: the second business day prior to the delivery month.

Last Intention Day: the second business day before the last business day of the delivery month.

For all Treasury futures, First Intention Day for short position holder coincides with First Position Day for long position holders.

Position Day for long position holder

Solution to Assignment 5: Interest Rate Futures Appendix- More Explanation

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Invoice Price = Settlement Price * Contract scaling factor (1,000) *

Conversion Factor

+ Accrued Interest (AI)

Converted Futures Price

Profit from delivery = Converted Futures Price + AI – (Cash Market Price

+ AI)

= Converted Futures Price – Cash Market Price

5. Invoice Amount and Profit from Delivery Calculations

Solution to Assignment 5: Interest Rate Futures Appendix- More Explanation