Question: Dudley Savings Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 105-100. Dudley Savings thinks interest rates will go down over the period of investment.
a. Should the bank go long or short on the futures contracts?
b. Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts increases to 105-220.
c. Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts decreases to 104-280.