The Sensitivity of the Market Price of a Financial Futures

question 7

True/False

The sensitivity of the market price of a financial futures contract to interest rates depends upon the duration of the security to be delivered under the futures contract.

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Definitions:

Nominal Annual Rate

The interest rate stated on a loan or investment agreement, not adjusted for inflation or other factors that affect real value.

Compounded Monthly

The process of calculating interest on both the initial principal and the accumulated interest from previous periods, done monthly.

Invest

The act of allocating resources, usually money, with the expectation of generating an income or profit.

Nominal Annual Rate

The annual interest rate quoted by financial institutions, not adjusted for inflation or other factors that affect the real rate of return.