EURO-DOLLAR FUTURES

Discussion in 'P1.T3. Financial Markets & Products (30%)' started by scorpiomanoj, Jun 21, 2009.

  1. scorpiomanoj

    scorpiomanoj New Member

    Hi David,

    Assuming today is jan 1 2009, does a 3 month euro dollar futures contract MATURING 1 year mean that the contract starts from Jan 1 2010 and matures march 31, 2010, or does it mean that the contract starts from october 1, 2009 and matures jan 1, 2010. Once again apologize for asking a very basic question.

    Thanks
    Regards
    Manoj Kumar Halan.
  2. Hi Manoj,

    Nearer to your first statement. Although, because this is a derivative, may be helpful to break into two pieces:

    1. The 3-month period is "merely" part of the reference; the underlying is a 3-month interest rate.
    2. The futures contract, in your example, is a one-year contract: bought on Jan 1st and settled (at maturity) on Jan 1st. Like any future, it "merely" refers to an underyling, in this case, the underlying is the 3 month interest rate that applies on the settlement day; i.e., the 3 month (spot) rate that applies if borrowing from Jan 1st to March 31st.

    See how the futures contract (the derivative), in your example, has a one-year maturity and the underlying that is references has a three-month maturity (by design the maturity on the underlying rate "starts" when the futures settles)

    Hope that helps (please no apologies about basic questions: it is what we do, I love the basics, they are constantly teaching me!)

    David

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