Buck
n general, futures markets are utilized by producers and users of commodities I as a means of shifting some of the risk of uncertain prices. This process is known as hedging. The underlying rationale of hedging is that commodity prices often fluctuate widely and capriciously. Interest rates, after decades of relative stability, have not only risen but have experienced increasing volatility beginning in the 1970s. Yields on 13-week Treasury bills, for example, fluctuated by 288 basis points over four successive weekly auctions starting with April 20, 1981 and ending May 11, 1981. Many factors, some of which defy consistent and accurate prediction, interact in the determination of a commodity's price in the marketplace. Interest rates are no exception. Swift and sometimes sharp price changes triggered by actual or even suspected revisions in the factors determining price are viewed by the "trade" (producers and users of financial instruments) as disruptive risks rather than as profit opportunities. To conduct their business on a rational basis, mortgage packagers, creditors, portfolio managers, etc., prefer price stability. Without a system of forward pricing to offset wide interest rate swings, it would be futile to attempt any manner of business planning in financial instruments.
To this end, organized futures markets began. The financial futures markets have grown significantly in volume and open interest since the Chicago Board of Trade (CBT) introduced Government National Mortgage Association (Ginnie Mae) contracts in October of 1975. The International Monetary Market of the Chicago Mercantile Exchange (IMM) followed this event with the offering of 13-week Treasury bill (T-bill) futures in January of 1976. In terms of trading volume, both markets have been unqualified commercial successes, which has led to