Interest Rate Futures: Introduction, Examples & Tutorials to Interest Rate Futures

Interest Rate Futures IRF are something that are gaining real good popularity. They are a kind of derivatives, which are based on interest rates, and offer hedging, arbitrage and speculative opportunities for various market participants.

Typically, it will be the banks which will get into Interest Rate Futures Contracts. However, with the invent and opening up of the Interest Rate Futures & other derivatives as listed products on leading stock exchanges of the world, now even the retail investors and traders can also put in their money into Interest Rate Futures & Derivatives.

In this article, we will talk about the various interest rates futures and derivatives. We will cover examples of Interest Rate Futures, Interest Rate Derivatives and provide a guideline to the topics covered as a course content for Interest Rate Futures & Derivatives.

Related How Interest rates affect stock prices

With the high volatility in the interest rates market and its negative correlation with the stock market returns (though debatable) and the recent recession, it has become clear that nothing in this world can remain stable and the same applies to the interest rate markets. Hence, just because you've bought a 20 year long bond which promised 10% annual return, it does not mean that the interest rates will remain the same during the whole 20 year period, and the price of the bond will also fluctuate because of the variation in the interest rates markets. Hence, it is very very important, not only for the traders and banks, but also for the retail investors like you and me, to be aware of the interest rates fluctutations and its affect on the overall market and the various financial instruments.

Here are the contents of any course on the Interest Rate Futures:

-- Interest Rate Futures terminology and definitions
-- Characteristics & Types of interest rate futures
-- Interest Rate Futures contracts as against the securities
-- Interest Rate Futures Risk management Methods and Procedures
-- Treasury Bond and Note for Interest Rate Futures Contracts

-- Interest Rate Futures - Underlying/deliverable instrument

-- Interest Rate Futures Basket delivery
-- Interest Rate Futures Conversion factors
-- Cheapest to deliver Interest Rate Futures and
-- Interest Rate Futures with regard to the implied repo rate
-- Implied put option for Interest Rate Futures
-- Trading in Interest Rate Futures
-- Risk management methods & applications for Interest Rate Futures
-- Interest Rate Futures and the Eurodollar Futures

-- Underlying instrument - Eurodollar deposit

-- Libor (London Inter Bank Offered Rate) - its affect on Interest Rate Futures
-- Methods of Interest Rate Futures Price Valuations - Index or discount pricing method, point values method and basis points method
-- Cash settlement only contracts
-- Cash market basis of final settlement price
-- Swaps for Interest Rate Futures


-- Terminology and definitions
-- Swap contract features for Interest Rate Futures
-- Interest rate swap contract cash flows and risks
-- Other types of interest rate swaps - amortizing, accreting and basis swaps
-- Risk management applications
-- Swaptions and Interest Rate Futures

CurrencyShares Euro Trust FXE: Euro USD Forex ETF Product: Review, Analysis & Details

Since the introduction of Euro in the European region, the Euro-USD Forex Exchange rates has been fluctuating widely. However, since the last 2 years or so, Euro has really becoming strong as compared to USD dollar (Forex Rate) and if you go by the recession that had hit primarily the US markets, it has led to Euro becoming more and more stronger.
Moreover, there have been some news items mentioning that some countries (like in Middle-East) are reportedly attempting the get rid of the Dollar Dependence and trying to sell oil contracts in their own respective currencies. All this is leading to a lot of volatility in the USD FOrex Exchagne Rate.
This fluctuations in forex rates have severly hit the exporters, importers, MNC companies across the globe and now everyone is attempting to look for a Forex Risk Management and Forex Hedging.

Wont it be nice if we can have a product which allows us to make investments in the Euro-USD forex, like a mutual fund or an Exchange Traded Fund (ETF), which is traded on an exchange and enables enough liquidity for investing, trading and hedging purposes for Forex Rates Fluctuations?
In this article, we will talk about such Forex Rate ETF or FOrex Exchange Traded Prodcuts, which offer enough liquidity for investing, trading and hedging purposes for Forex Rates Fluctuations

The CurrencyShares Euro Trust FXE from Rydex Investments is one such good option available to investors who can benefit from investing or trading in the units of this exchagne traded product and achieve the aim of hedging against forex rates fluctuations.

What is CurrencyShares Euro Trust FXE?
CurrencyShares Euro Trust FXE, is an exchange traded product tracking the price of the euro, in USD. Hence, it can be easily used for arbitrage traders or market makers who are betting their money on EUR-USD forex contracts or by traders (exporters/ importers) who want to hedge themselves from the fluctuations in EUR-USD forex prices.

Which Benchmark does the CurrencyShares Euro Trust FXE follow?
The benchmark product followed by CurrencyShares Euro Trust FXE is the WM Reuters Euro Closign Spot rates, which are quoted in USD.

What is the unit for investment in CurrencyShares Euro Trust FXE?
The no. of EUR per share for CurrencyShares Euro Trust FXE is 100.

What are the trading benefits of Currency Shares Euro Trust FXE?
For traders, it allows short selling, which means that traders can also go short on the EUR-USD contracts and benefit from them.
-- Protects against wide currency flcutuations and hence reduces the risk
-- Enables short term trading benefits
-- Allows easy trading in Forex Contracts without an overseas brokerage account
-- Low brokerage and transaction costs
-- CurrencyShares will be backed by the assets of the Trust

What has been the historical performance of CurrencyShares Euro Trust FXE?
This graph below will illustrate how the EUR-USD has been fluctuating for this CurrencyShares Euro Trust FXE product. Also note that there appears to be a perfect correlation of this EUR-USD Forex Product with the EUR-USD forex rates.



Is this product risk free?
Nothing in this world comes for free and the same goes for this product. Check the ups and downs in the graph above for this product. It will tell you that there is no one direction for this product. EUR-USD price fluctuations can go either way.

Fixed Income Securities Market: Introduction, Example, Market Participants & Types of Fixed Income Securities

In this article, we will discuss about Fixed Income Securities Market, The types of Fixed Income Securities, The Market Participants for Fixed Income Securities and how the market for Fixed Income Securities workds?

-- Participants of the Fixed Income Securities: :
? Investors of the Fixed Income Securities: These may be long term or short term investors and may inlcude retail investors (small amount investments) to large investors (million-billion dollar amount investments)

? Issuers of the Fixed Income Securities: The banks, organizations, governments who actually issue new Fixed Income Securities

? Sell-side of the Fixed Income Securities: These are broker dealers who make the markets and fulfill the demands of

? Service Organizations of the Fixed Income Securities:

-- Bond Concepts or Fixed Income Securities Concepts: There are certain concepts on which any product is based, same goes for the financial products. The Fixed Income Securities are based on the concepts of Interest Rates(heavily) and minutely on other factors like inflation, other macro-economic factors, etc.

? Interest Rates

o Conventional Yield Measures

? Ratings

? Term

? Yield Curves

-- Fixed Income Securities : In this section, we cover the basic types and characteristics of the Fixed Income Securities.

? Types & Characteristics of Fixed Income Securities

o Government securities

? Treasury bills

? Notes

? Bonds

? Treasury Inflation Protected Securities (TIPS, I- bonds)

? Agency securities

o Mortgage backed securities

? Agency

? Non-conforming

o Asset backed securities

? CMO

? Cash Flow

o Credit card receivables: Not for individuals, but this is for the banks issuing the credit cards and have an outstanding receivable from the credit card holders.

o Auto loans:

o Receivables:

o State and local government

? General obligation;

? Revenue

o Corporate bonds

? General obligation

? Indentures

-- Trading MarketPlaces:

? Traditional Exchanges

? Over the Counter

? Electronic Markets

? Quotes

-- Risks/Reward:

? Risks

o Default

o Interest Rate

o Inflation

o Liquidity

? Rewards

o Capital Gains

o Interest Income

o Entitlements

? Remedies in the Event of Default

Portfolio Management: Introduction, Types, Risks and Services of Portfolio Management

In this article, we will present the basic overview and ingredients of the concepts, process and tools of portfolio management. Every portfolio management task should begin with a well defined aim, and looking at the aim of the portfolio, the investors take a call whether they wish to invest in the portfolio or not. So basically, the aim and objective of a portfolio management scheme is very important.

The discussion will consider how these factors vary across investors for various types of institutional as well as individual investors. Asset allocation decisions and their implications are also important parameters for an investor to decide whether to put his hard earned money into these portfolio schemes or not.

We present a broad level overview of the topics which will be discussed in portfolio management. They include: Portfolio management styles; performance of active versus passive strategies; measuring risk and calculating risk adjusted returns; performance attribution; selection of appropriate benchmarks, etc.

Topics for portfolio management includes the following:
? Introduction to Portfolio Management
o Investment Objective Setting
o Modern Portfolio Theory
o Risk and Return - Definition, Sources and Quantification
o Asset Allocation - Definition, Importance, Tactical versus Strategic

? Fixed Income Portfolio Management
o Active versus Passive Fixed Income Portfolio Management
o Active Portfolio Management Styles
o Indexed Portfolios
o Assessing Performance

? Equity Portfolio Management
o Active versus Passive Equity Portfolio Management
o Active Portfolio Management Styles
o Indexed Portfolios
o Assessing Performance

After going through these topics in detail, a financial consultant, a portfolio manager or anyone should be able to:
? Describe the characteristic features of various portfolio management styles (active, passive, semi-active/passive, indexing, etc.) and implications for security selection and portfolio construction of the different styles
? Discuss basic issues in assessing investment management performance including defining, differentiating and relating to one another: measurement of investment returns, performance assessment, and return attribution
? Identify key elements of MPT (Modern Portfolio Theory) and CAPM (Capital Asset Pricing Model) and recognize how particular aspects of each are used in quantifying risk and assessing returns
? Discuss investor rationale for adopting indexing strategies, including types of indexing (full portfolio replication, enhanced indexing, etc.), impact on expected risk and return as well as fee and expense related issues
? Define commonly used risk measures (standard deviation of return, Beta & duration) and describe their use in quantifying and expressing risk as well as assessing performance

BMO ETF: Bank of Montreal ETF Review, Analysis and Details

The Bank of Montreal has come out with its ETF's or Exchange Traded Funds in the month of February 2009. Though the time is not that long duration to provide an overview and performance monitoring of these ETF's launched by BMO or Bank of Montreal, still these ETFs are worth considering. Given their diversified nature and the broad category of index and sectors which these ETF's are based on, it is surely worth considering to check with these ETF of Bank of Montreal.

BMO Canadian Government Bond Index ETF?? ZGB : Primarily, this ETF focuses on the Government Bond issued by the Canada Government. Investors who are looking to benefit from the stability in Canada and hence returns from these Canada Govt Bonds, can opt for this ETF.

BMO Dow Jones Canada Titans 60 Index ETF?? ZCN :
This ETF attempts to replicate the Dow Jones Canada Titans 60 Index. Since this is specific to Canada, it means that the underlying index will have only the top 60 stocks of Canada. A good option for investors to benefit from the top titans of Canadian stock markets.

BMO US Equity Index ETF?? ZUE :
This can be a good hedging option - for individal traders who wish to play arbitrage between US and Canada stocks.

BMO Dow Jones Diamonds Index ETF?? ZDJ :
Dont go by the name Diamonds, as this fund really has nothing to do with Diamonds. It replicates the Dow Jones Industrial Average (CAD hedging) Index.

BMO Short Federal Bond Index ETF?? ZFS :
This fund tracks the performance of the DEX Short Term Federal Bond Index. A safe bet for investor who have faith in the Federal bonds.

BMO Short Provincial Bond Index ETF?? ZPS :
This fund tracks the performance of the DEX Short Term Provincial Bond Index. A good option for investors who prefer bond investments with less risk appetite.

BMO Short Corporate Bond Index ETF?? ZCS :
Tracks the performance of the DEX Short Term Corporate Bond Index. Investors who trust corporate bonds can opt for this ETF investments.

BMO High Yield US Corporate Bond Hedged to CAD Index ETF?? ZHY :


BMO S&P/TSX Equal Weight Banks Index ETF?? ZEB :
Another ETF from BOM, specific to Canadian banks. It offers a diversified and equal weighted investments in various Canadian bank stocks.

BMO S&P/TSX Equal Weight Oil & Gas Index ETF?? ZEO :
This Oild and Gas ETF offers exposure to the diversified set of investments in equal weighted proportion in a portfolio that consists of common shares of Canadian oil and gas companies. A good option for investors looking for investing in Canada based Oil and Gas companies.

BMO Emerging Markets Equity Index ETF?? ZEM :
Tracks the Dow Jones Emerging Markets Total Stock Market Specialty Index.

BMO International Equity Hedged to CAD Index ETF?? ZDM :

BMO S&P/TSX Equal Weight Global Base Metals Hedged to CAD Index ETF?? ZMT :

Indiabulls Power IPO: Review Analysis & Details

The IndiaBulls company, which started its business as a stock brokerage firm and then moved into real estate and other ventures, is now coming out with another IPO. There is a new IPO called Indiabulls Power IPO which is going to hit the primary stock markets on October 12th, 2009.
The Initial Public Offering is the Company in the business of Power and is called Indiabulls Power Limited.
In this article, we will look at the Review, Analysis and Details of the Indiabulls Power IPO and try to do the Review and analysis of Indiabulls Power IPO.
Some basic details first about the Indiabulls Power IPO:
What is the issue size of the Indiabulls Power IPO?
The Indiabulls Power issue size is expecting to raise around 1600 to 1800 crore Rupees from the primary stock market, by floating its shares.

How is the share distribution done?
The IPO consists of issuance of around 336 million shares which will be in the open market. Around 50 million share will be in the green shoe option No info is available about the employee quota or reservation of shares for the employees.
The IPO issue of Indiabulls Power would constitute around 17% per cent of the company's post issue paid up capital.

How will the capital raised by Indiabulls Power IPO be used?
The company would use the IPO proceeds for expansion of its business at Nasik & Amravati power projects of Indiabulls Power Limited.

What is the price band of the Indiabulls Power IPO
The price band for shares of Indiabulls Power IPO is 42-45 Rs. per share.

What is the trading symbol & exchange for the Indiabulls Power IPO
No info is available about the trading symbol.

What are the IPO dates for Indiabulls Power IPO
The IPO for Indiabulls Power is going to open on 12 October 2009 and will close on 15th Oct 2009.

What is the business prospect and company profile of Indiabulls Power?
The company has presence in multiple sectors - brokerage and financial services being the primary one. They are also into retail stores management and real estate management.

Who are the underwriters of the Indiabulls Power IPO?
Morgan Stanley India are the BRLM or Book Running LEad Managers of the issue. Karvy are the Registrar. To get the Allotment status of Indiabulls Power IPO visit www.karvy.com/ipoStatus

What are the analysts recommendations for this IPO?
No recommendations from market analysts are available as of now

ICICI Lombard Motor Insurance: Online Renewal: High Cost, Low Value

You all must have seen the recent ad of ICICI Lombard Motor Insurance. This ad has a person mentioning the following: "Raat ke 11 baje the, motor insurance khatam ho raha tha. I got it online at ICICILombard.com". Basically meaning that "It was 11 PM at night, my car insurance coverage was getting over, so I just logged onto ICICILombard.com and got it at an instant.

This ad from ICICI Lombard Insurance, sometimes comes in solo, or clubbed with other ads like that of Travel insurance, etc.

So I thought of giving it a go. Had bought a vehicle last year and the vehicle seller had not offered me any choice of selecting the insurer for my vehicle hence I was forced with this ICICILombard Policy.
Now, it was nearing 1 year, so I decided to renew it online. See what happened.

When I tried to generate a quote for a new insurance (not a renewal) for my vehicle on ICICILombard.com, I was quoted a price of around 930 Rs.

However, when I asked for a quote for renewing my existing policy for the next year, it was higher 1076 Rs. Unfortunately, I generated the new insurance policy quote after I had opted for renewal, so lost 140 Rs. in the process.

That is the cost of getting everything at the click of the button from your office/home.

What is more interesting is the Insurance Declared Value - there has been a significant reduction in the IDV value of my vehicle (more than 13% reduction), but the premium then charged for the renewal was increased (almost 15% increase - from 930 to 1076 Rs.)

Now I agree that IDV can go lower as time passes by, but why to charge heavily (as high as 15% extra), just because a customer is renewing his insurance.

Is this the way the loyal customers are to be treated???

Then, as another sample check, I tried generating a quote for my vehicle on Bajaj Allianz Insurance Site. For the same vehicle, I got a price quote of the same 930 Rs. from Bajaj Allianz. Had I took my vehicle to a nearby Bajaj Allianz Insurance shop (just 1 Km from my place), I would have saved almost 150 Rs. (that's more almost 15% savings). Even if I had taken my vehicle to ICICI Lombard shop (around 3 Kms), and instead of renewing my exisitng policy, had I opted for a new one, I would have again saved the same amount of money from the same insurer.

What I cannot understand is why this kind of malpractices exists. I agree that a company needs to invest in infrastructure and operational costs for IT services, but is it justified to charge extra from a customer who is renewing the same policy, that to to the tune of 15% high premium??

I managed to identify this after paying the price. Do ICICILombard expects a customer to remain loyal to them with such practices??

Next time, I would better take my vehicle to a government insurance company office and get it insured. If I may not like to go for government insurance companies, then I will take it to the same ICICILombard counter, and instead of renewing the policy, I will buy a fresh one.