Use the following information to answer questions 22 through 24.On October 1,the one-month LIBOR rate is 4.50 percent and the two month LIBOR rate is 5.00 percent.The November Fed funds futures is quoted at 94.50.The contract size is $5,000,000.
-The dollar value of a one basis point rise in the Fed funds futures price is
A)-$25.00
B)$41.67
C)$5,000
D)$25.00
E)none of the above

Question

Quizplus · Accepted Answer

A one basis point rise in the Fed funds futures price equals a $41.67 increase in the value of one contract. This is because each contract is worth $1,000,000 divided by 10,000 (the basis point increment) which equals $100 per basis point. Therefore, a one basis point increase would equal $100, and since each contract is worth 0.25 basis points (the minimum price increment), the value of one contract would increase by $25. But since there are four contracts in a typical trading unit, the total increase in value would be $25 x 4 = $100. So a one basis point rise in the price of one contract equals a $100 increase in total value, which divided by 2.4 (the number of basis points in one percentage point) equals $41.67 per basis point.

Use the Following Information to Answer Questions 22 Through 24