Suppose that in June, when the 90-day BBSW is 5%, the prices for the September and December BAB futures contracts are 95.10 and 95.15, respectively.

Question

Quizplus · Accepted Answer

The prices of the September and December BAB futures contracts imply an expected 90-day rate of approximately 4.90% in September. This is because the futures prices are negatively correlated with interest rates – as interest rates go up, futures prices go down. Therefore, the higher price of the December contract compared to the September contract indicates that market participants expect interest rates to be slightly higher in December compared to September. Consequently, the expected 90-day rate in September is between 5% and 4.85%, which is approximately 4.90%. The other choices are not supported by the information provided.

Suppose That in June, When the 90-Day BBSW Is 5