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Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition by Youssef F. Bissada, Jean Dermine

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Forwards and futures

As discussed in Stage 14, forwards and financial futures are agreements to buy (or sell) a government bond at a price fixed today (say, 90) with a delivery date in the future (Figure 17.1).

Figure 17.1. Financial futures

  • If the bond price at delivery date exceeds 90, there is a gain when you buy a future.

  • If the bond price falls to 87, there would be a loss since we would have to pay 90 for an asset which is worth only 87.

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