Bankers' Acceptance futures?

Three-month and one-month Canadian Bankers' Acceptance futures began trading on The Montreal Exchange in 1988 and 1992, respectively.

BA futures are traded on an index basis. To determine the implied yield of a BA future, the price is subtracted from 100. For example, if March BA futures are offered on the floor of the Exchange at 91.00, this implies a 9% yield for cash BAs in March (i.e., 100 - 91.00).

In the BA cash market, the investor buys the instrument at the discounted price and receives the face value at maturity. The difference between the face value and the discount price of the instrument is the "yield" on the investment. In the futures market, however, the investor will buy or sell a contract at the value at which it is trading. The investor will not actually pay for it (or receive proceeds if it is initially sold) but will deposit security (an initial margin) as a sign of good faith that he will honor the contract. Then, the investor will either close out the position by selling the contract, by purchasing it (if previously sold) or by waiting until delivery, at which time the investor will "take delivery". Initial margin is returned at this time.

The contract is rarely kept to final settlement. It is usually liquidated in the futures market prior to the delivery date. The difference between the value at which the investor liquidates the contract and the price at which he entered into it represents his gain or loss on the transaction. The futures market may be used as a temporary replacement for future borrowing or investment. Having agreed to sell BAs in the futures market in order to establish a borrowing cost in the future, the hedger will buy back the futures contract and borrow funds in the money market at the time the borrowing is required, often with a bank acting as an intermediary. If interest rates have risen in the meantime, the value of cash BAs will have fallen. By buying back the futures at a lower value, the company will realize a profit on the futures market to compensate for the higher interest rate at which it must borrow. If interest rates have dropped in the meantime, the company will have a loss on the futures market when the futures contract is bought back. This loss will be offset by the lower borrowing cost now available on cash BAs.