LIFFE's unique range of Deutschmark products comprises the Bond futures and options contracts at the long end and the Three Month Eurodeutschmark interest rate futures contract (Euromark future) and the Option on the Three Month Eurodeutschmark interest rate futures contract (Euromark option) at the short end Of the maturity spectrum. These contracts offer a variety of very flexible and versatile hedging and trading strategies.
Treasury managers use a comprehensive range of Deutschmark money market instruments (namely Deutschmark over-the-counter derivatives such as FRA's and IRS'S) and they need an appropriate hedging tool to match those instruments. The Euromark contract can be used to cover interest rate risk at the short end of the yield curve and is an efficient and flexible means of hedging the entire range of Eurodeutschmark denominated money market instruments. Presently ten delivery months are available for trading, allowing the hedging of interest rate exposure up to two and a half years.
The Euromark contract can also be used for "spread trading" between Eurodeutschmark three-month interest rates and those of other currencies. This opportunity is available only on LIFFE, the one market in the world with three-month interest rate futures for six major currencies.
Under the Bank agreement for the convergence of capital adequacy of international banks, exchange traded interest rate contracts are exempt from capital weighting for counterparty credit risk. Positions may be taken in the LIFFE Euromark contract minimizing the constraints on banks' credit limits or balance sheet exposure.