
Interest Rate Futures 175
Assume that the interest rate increases by 100 basis points for the company and yield on the
GOI securities increases by 80 basis points. is causes the futures price to decrease to INR 92.38 on
September 30.
When the yield to maturity increases to 11%, the bond can be issued at INR 94.02. us,
Loss from the issue of bond = 10,000,000 – 94.02 × 1,000,000
= INR 5.98 million
Gain from futures = 500 × 2,000 × (97.52 – 92.38)
= INR 5.14 million.
Net loss = INR 5,980,000 – INR 5,140,000
= INR 0.84 million
rough hedging, the loss is reduced from INR 5.98 million to INR 0.84 million.
Note that a perfect hedge is not achievable ...