The Eurodollar CD futures contract is used frequently to trade the short end of the yield curve and many hedgers believe this contract to be the best hedging vehicle for a wide range of hedging situations.

2Open interest is the number of futures contracts established that have yet to be offset.

The 90-day sterling Libor interest rate futures contract trades on the main London futures exchange, LIFFE. The contract is structured simi- larly to the Eurodollar futures contract described above. The Bloomberg Futures Contract Description screen for the March 2002 contract is presented in Exhibit 11.4. Prices are quoted as 100 minus the interest rate and the delivery months are March, June, September, and December. The contract size is £500,000. A tick is 0.01 or one basis point and the tick value is £12.5. Exhibit 11.5 presents a Bloomberg screen with settlement prices of the near-term 90-day sterling LIBOR contract on January 22, 2002.

The LIFFE exchange also trades short-term interest rate futures for other major currencies including euros, yen, and Swiss franc. For example, Exhibit 11.6 presents a Bloomberg Futures Contract Description screen for the June 2002 90-day Euro Euribor contract. Short-term interest rate contracts in other currencies are similar to the 90-day sterling Libor contract and trade on exchanges such as Deutsche Terminbourse in Frankfort and MATIF in Paris.

Fed Funds Futures Contract

When the Federal Reserve formulates and executes monetary policy, the federal funds rate is frequently a significant operating target. Accord- ingly, the federal funds rate is a key short-term interest rate. The fed funds futures contract is designed for hedgers who have exposure to this rate or speculators who want to make a bet on the direction of U.S. monetary policy. Underlying this contract is the simple average overnight federal funds rate (i.e., the effective rate) for the delivery month. As such, this contract is settled in cash.

Exhibit 11.7 presents the Bloomberg Futures Contract Description screen for the May 2002 fed funds futures contract. The contract size is $5,000,000 and the tick size is 0.005 or ¹⁄₂ basis point. Accordingly, the tick value is 20.835. Just as the other short-term interest futures con- tracts discussed above, prices are quoted as 100-the interest rate. Exhibit 11.8 presents the Bloomberg Contract Table screen for the