CA-9.7.4
Deposit futures, forward rate agreements and other instruments where the underlying is a money market
(a) The first leg represents the time to expiry of the futures contract, or settlement date of the FRA as the case may be;
(b) The second leg represents the time to expiry of the underlying instrument;
(c) Each leg is treated as a zero coupon bond with zero specific risk; and
(d) For deposit futures, the size of each leg is the notional amount of the underlying money market exposure . For FRAs, the size of each leg is the notional amount of the underlying money market exposure discounted to present value, although in the maturity method, the notional amount may be used without discounting.
For example, under the maturity method, a single 3-month Euro$ 1,000,000 deposit futures contract expiring in 3 months' time has one leg of $ 1,000,000 representing the 8 months to contract expiry, and another leg of $ 1,000,000 in the 11 months' time-band representing the time to expiry of the deposit underlying the futures contract.
January 2015