National stock exchange (NSE) started Interest Rate Futures on 31st August 2009. IRF is considered as an instrument for hedging against interest rate fluctuations. It is believed that banks, insurance companies,mutual funds, pension funds, financial institutions, corporate houses, FIIs, NRIs and retail investors who are exposed to interest rate risks will be the main beneficiaries of Interest Rate Futures. Interest Rate Futures contracts were first traded in the United States on October 29, 1975. Interest Rate Futures are the most widely traded derivatives instrument in the world.

1,Definition of Interest Rate Futures contract?

An interest rate futures contract is an agreement to buy or sell a debt instrument at a specified future date at a price that is fixed today.

2,Primary aim of Interest rate futures?

To minimize interest rate risk.

3,What is the contract size of Interest rate futures?

INR 2 lakhs

4,What is the underlying instrument of IRF?

10 year notional coupon-bearing Government of India (GOI) security (Instrument name-FUTIRD)

5,What is the meaning of coupon?

Coupon is the interest paid by the issuer to the bond holder at periodic intervals.

6, What are the factors which affect Interest Rate?

Inflation, Financial policies by ministry, RBI policies, Rupee fluctuations, Interest rates of other countries are the factors that affect Interest rate.

7,What should an Investor do in order to avoid rise or fall in interest rates?

If you expect that interest rates to move up you can make profit from the movement by selling in the interest rate futures. This is because the underlying GOI security price which is expected to fall in response to rising interest rates. If you expect interest rates to move down you can buy interest rate futures contracts.

8,How is the settlement mechanism in IRF?

Interest rate futures contracts will be physically settled by the delivery of deliverable grade securities. Physical delivery will be through the electronic book entry system of NSDL, CDSL and PDO of the reserve bank of India (RBI).

9, What is the Expiry day and time of Interest Rate Futures?

Interest Rate Futures contracts shall expire seven working days prior to the last business day of the expiry month. The IRF contracts shall expire at the normal market closing time on the expiry day.

10, What should one do to start trading in Interest Rate Futures?

Interest rate futures can be bought and sold through the trading members of the National Stock Exchange. To start trading in Interest Rate Futures one has to open an account with any of the trading member.