Financial Management · 1976 · 15 citations · 0 references
Term Structure ModelFinancial DataInterest Rate RiskCommodity MarketFutures MarketsMonetary PolicyInterest Rate FuturesFutures MarketManagementFinancial ModelingEconomicsForward RateBond MarketInternational Monetary SystemFinancial Manager TodayFinanceFinancial EconomicsBusinessFinancial EngineeringForeign Exchange MarketFinancial Crisis
O ne of the many problems facing the financial manager today is how to deal with the possibility of wide fluctuations in interest rates. For years, buyers and sellers of a wide variety of commodities have used the futures markets to offset much of the risk of future price fluctuations. Until recently, however, there was no effective, inexpensive way for the financial manager to hedge against the possibility of rising or falling future interest rates. Fortunately, in October 1975, the Chicago Board of Trade opened a futures market in Government National Mortgage Association pass-through certificates (GNMA's), and in January 1976, the International Monetary Market of the Chicago Mercantile Exchange provided a market for futures trading in 3-month Treasury Bills (T-bills). The purpose of this article is to review the operations of these two futures markets and to demonstrate how futures trading in either GNMA or T-bill securities might be used to reduce the risk of future interest rate fluctuations.