National Stock Exchange (NSE) has launched interest rate options on 10-year Government bonds. Rival bourse BSE launched trading in interest rate options based on government securities in August this year.
About:
What is it? Interest rate options are financial derivative contracts whose values are based on an underlying interest rate. Market participants can use options to trade and hedge interest rate risk on a transparent platform.
Features: These interest rate options by NSE are based on 10-year government bonds maturing in 2029 with coupon rate of 7.26 per cent and 6.45 per cent. Presently, interest rate futures are available on seven government bonds for residual maturity ranging from 4 years to 15 years.
Benefits: The move is aimed at providing an efficient tool for managing interest rate risk and exposure through hedging. Interest rate options will provide institutional investors the ability to manage risk through a non-linear product which is otherwise not available to them.
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