interest rate futures:

step1  buy   Deposite, investment

           sell  borrow money    loan

step2.number of contracts

size of doposite (loan)/size of contract *(duration of deposite(loan)/duration of contract)

lockiong rate= 100-(current future price+expired basis on the transaction)

basis=(100-current LIBOR)-Futures

expected term: today  to future

basis term   transaction date to future date

locked in rate =100-(future+expected term basis )

forward agreement

5-8  FRA     @8%       5%

if the real rate is 7%

Loan(borrow)   maxium payment    ceiling 

deposite (investment)     minium received floor

loser will pay the difference.

pay lender the contract rate,

if FRA  > actual rate   broker pay back 

if FRA   < actual rate   pay broker the different      actually the borrower need to pay the actual rate

lower rate=investor

high rate = borrower

hedge:  1. position  buy or sell  

2. risk exposure: 

offsite the actual interest movement