Friday, August 14, 2009

Eurodollar interest rate futures(1)

Just as in the foreign exchange market, there are Eurodollar interest rate futures in addition to interest rate forwards. Similar to currency futures, interest rate futures are contrasts to deliver a certain amount of bank deposits at some future date at a specified interest rate or price. These may take the form of either Eurodollar time deposits or Eurodollar CDs of a major bank. They carry the locked-in interest rate that was agreed upon when the contrast was signed, and the gain (loss)of the contract will depend on whether the interest rate on the day the contract comes due is less (more) than the contracted rate, multiplied by the amount of the contrast.

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