Hong Kong Interbank Offered Rate (HIBOR) is the rate on which Hong Kong dollar-denominated instruments are traded between banks in Hong Kong. Fixing rates (ranging from 1 to 12-month) are set at 11:00 a.m. (Hong Kong time) based on HIBOR quotations provided by 20 banks designated by the Hong Kong Association of Banks (HKAB). By eliminating the three highest (or in the case of equality, three of the highest) and the three lowest (or in the case of equality, three of the lowest) of such HIBOR quotations, the arithmetic mean of the remaining 14 offered rates for each period (rounded up to five decimal places) shall represent the HKAB interest settlement rates.
With the unsettling events in the Asian currency markets since 1997, Hong Kong dollar interest rate fluctuations have increased. Hong Kong dollar investors are increasingly concerned with interest rate volatility and are employing different risk management tools to hedge their exposures. This reinforces the value of interest rates futures as effective hedging instruments.
The One-Month HIBOR and Three-Month HIBOR futures contracts are based on the One-Month and Three-Month HIBORs, which are the benchmarks for short-term interest rates in the Hong Kong dollar money market.
HKFE's introduction of One-Month HIBOR futures contracts on 20 October 1998, and Three-Month HIBOR futures contracts on 26 September 1997 provides a set of interest rate products which allow market participants to manage their interest rate exposures more effectively.
Applications of One-Month and Three-Month HIBOR Futures