Overnight MIBOR
Also written MIBOR · FBIL Overnight MIBOR · Mumbai Interbank Outright Rate
The benchmark overnight rupee interbank rate administered by FBIL, and the underlying of India's money market interest rate futures contract, which is quoted as a rate rather than a price.
In plain language
Overnight MIBOR — the Mumbai Interbank Outright Rate — is the rate at which banks lend rupees to each other for one day. It is the shortest point on the Indian rate curve and the benchmark that overnight index swaps, India's most successful OTC interest rate derivative, are written on.
It is also the underlying of an exchange-traded futures contract, and that contract is unlike every other one in this paper. There is no bond, no face value and no price. One contract is the interest on a notional principal of Rs 5 crore for one month, computed on a 30/365 day count at a rate equal to the average daily FBIL Overnight MIBOR for the contract month.
Because the quotation is an interest rate and not a bond price, the direction of every trade reverses — and that reversal is the single most examinable thing about it.
How it works
The direction trap. With bond futures, a participant expecting rates to rise sells, because rising yields mean falling bond prices. With MIBOR futures, a participant expecting short rates to rise buys, because the quotation is the rate. The workbook's hedging table spells both out side by side:
| Expectation | GOI bond futures | T-Bill futures | MIBOR futures |
|---|---|---|---|
| Rates will rise | sell | sell | buy |
| Rates will fall | buy | buy | sell |
The worked case is a borrower: a participant who will borrow in three months is exposed to rates rising, so he sells single bond futures — but he goes long MIBOR futures for the identical exposure.
The value of a basis point. Everything about the contract's money flows from one figure:
Rs 5,00,00,000 × 0.01% × 30/365 = Rs 411
One basis point is worth Rs 411 per contract. The tick size is a quarter of a basis point, so a tick is worth Rs 102.75.
Settlement. The contract expires on the last working day of the month, with trading on the last day running only from 9 am to 10 am. Final settlement is the simple average of the daily FBIL Overnight MIBOR rates, to four decimals, applicable for the contract month — an average over the month, not a closing print. The daily settlement price is the volume weighted average rate of trades in the last 30 minutes subject to at least five trades, failing which the last 60 minutes, failing which a theoretical rate.
The formula
Unit of trading = interest on a notional principal of Rs 5 crore for one month,
on a 30/365 basis, at the average daily FBIL Overnight MIBOR
for the contract month
Value of 1 bp = Rs 5,00,00,000 × 0.01% × 30/365 = Rs 411
Tick size = 0.25 bp (0.0025) → Rs 102.75
Contract value = Quoted rate × 100 × 411
Profit or loss = (Settlement rate − Trade rate in bp) × Rs 411 × number of lots
long profits when the rate rises
A worked example
The workbook's trade. A participant buys 10 lots at a quoted rate of 4.50%:
Contract value = 4.50 × 100 × 411 × 10 = Rs 18,49,500
The simple average of daily FBIL Overnight MIBOR for the contract month prints at 4.85%:
Rate move = 4.85% − 4.50% = 35 basis points
Gain = 35 × Rs 411 × 10 lots = Rs 1,43,850
The long made money because the rate rose — the opposite of every bond contract in the paper.
Hedging a real borrowing. An NBFC will roll Rs 50 crore of overnight funding through next month and fears the call rate rising. Its exposure is one month of interest on Rs 50 crore, which is ten contracts of Rs 5 crore each:
Lots = Rs 50,00,00,000 ÷ Rs 5,00,00,000 = 10 lots, bought
The month's average MIBOR comes in 35 bp above the rate it locked:
Extra funding cost = Rs 50 cr × 0.35% × 30/365 = Rs 1,43,836
Futures gain = 35 × Rs 411 × 10 = Rs 1,43,850
The two match to within fourteen rupees, because the contract was engineered to: Rs 411 is one basis point of a month's interest on Rs 5 crore at 30/365.
A tick, in money. The minimum move is a quarter of a basis point:
0.25 × Rs 411 = Rs 102.75 per lot, Rs 1,027.50 across the ten
Compare that with Rs 5 on a bond futures lot and Rs 1.25 on a T-Bill futures lot, all from the same Rs 0.0025 tick size.
Why NISM asks about it
Chapter 3, section 3.3, carries the full Overnight MIBOR futures specification — underlying, unit of trading, quotation in interest rate, the Rs 411 basis point value, the base rate taken from the MIBOR OIS curve on day one, the last-working-day expiry with its 9 am to 10 am final session, and the simple-average final settlement. Section 3.4.3 works the contract value and tick arithmetic. Chapter 5, section 5.2, contains the direction table that reverses for MIBOR, and Chapter 2 notes that Overnight Index Swaps on this benchmark are India's successful OTC interest rate derivative.
Questions ask which way to trade MIBOR futures for a stated rate view, for the contract value at a quoted rate, and for the value of one basis point or one tick.
Common exam traps
- Buy MIBOR futures when you expect rates to rise. Every other contract in the paper is the other way round, and the workbook tabulates the reversal deliberately.
- Rs 411 is one basis point, not one tick. The tick is a quarter of a basis point and is worth Rs 102.75.
- The day count is 30/365, not 30/360 or Actual/365. Change it and the Rs 411 changes with it.
- Final settlement is a simple average over the whole contract month, to four decimals — not the last day's rate and not a volume weighted print.
- There is no face value and no bond. The contract is interest on a notional principal; the Rs 5 crore never moves and there is nothing to deliver.
- The contract value is far below the notional principal. Rs 18.5 lakh of contract value against Rs 5 crore of notional, because the contract covers one month's interest rather than the principal itself.
Check yourself
1.If the base rate of an Overnight MIBOR futures contract is 5, what is its operating range?
- a)4.75 and 5.25
- b)4.95 and 5.05
- c)4.90 and 5.10
- d)4.50 and 5.50
Show the answer
Answer: (a) 4.75 and 5.25
Overnight MIBOR futures carry an operating range of +/− 5% of the BASE RATE.
$$5 \times 5% = 0.25 \quad \Rightarrow \quad \mathbf{5.25\ and\ 4.75}$$
⚠️ The trap is reading "+/− 5%" as five basis points or five percentage points. It is 5 percent OF the base rate — a proportional band. Option (b) would be a 1% band, option (c) a 2% band and option (d) a 10% band.
For comparison across the product set: GOI bond futures +/− 3% (expandable by 0.5% twice, so a maximum of +/− 4% in a day); 91-day T-Bill futures +/− 1%; corporate bond index futures 5%; and GOI bond OPTIONS use a DELTA-based band computed daily from the previous close of the underlying and volatility.
2.Party A pays Overnight MIBOR and receives a fixed rate of 3.75% p.a. on a notional of Rs 100 crore for 32 days. The daily-compounded floating interest works out to Rs 31,58,169. What is the net pay-off for A?
- a)A receives Rs 1,29,503
- b)A pays Rs 1,29,503
- c)A receives Rs 32,87,671
- d)A neither pays nor receives, since the notional principal is not exchanged
Show the answer
Answer: (a) A receives Rs 1,29,503
Fixed leg = 100 crore × 3.75% × 32/365 = Rs 32,87,671 (Actual/365, the Indian money market convention).
Floating leg payable by A = Rs 31,58,169.
Net = 32,87,671 − 31,58,169 = Rs 1,29,503 receivable by A, and the same amount payable by B.
What the sign tells you: realised overnight MIBOR averaged just below 3.75% over the month — the fixings drifted from around 3.70% down to 3.45–3.48% in the final third — so A, who was paying floating and receiving fixed, came out ahead. Had MIBOR averaged above 3.75%, B would have gained.
Option (d) confuses two things: it is true that the Rs 100 crore notional never changes hands, but the net interest difference does.
3.If you expect interest rates to go UP in future, what should you do today?
- a)Sell GOI bond futures
- b)Buy GOI bond futures
- c)Buy the underlying bond
- d)Buy GOI bond call options
Show the answer
Answer: (a) Sell GOI bond futures
Rates up means bond prices fall, because of the inverse relationship. So you sell the bond future now and buy it back cheaper later.
From the workbook's market-side table, an expectation that interest rates will increase means going long on interest rate, which translates into: sell GOI bond futures, buy GOI bond PUT option, sell T-Bill futures, and BUY Overnight MIBOR futures.
⚠️ Note that last item — the MIBOR line runs the opposite way. Bond and T-Bill futures are quoted on price, which moves inversely to rate; Overnight MIBOR futures are quoted on the RATE ITSELF, so the same bullish-on-rates view means going long there. Getting this backwards does not merely fail to hedge — it doubles the exposure.
Where this is taught
Free preparation for NISM Series IVRelated terms
- Interest rate swapAn agreement to exchange streams of interest payments on a notional principal for a set period — typically fixed against floating — where only the net difference ever changes hands.
- Contract valuePrice or rate multiplied by the lot size or contract multiplier — the number margins, brokerage, transaction charges and regulatory fees are all computed from, and different for every contract.
- Day count fractionThe agreed rule for turning a period into a fraction of a year — the numerator counts days in the period, the denominator days in the year — and it decides every accrual figure in the market.
- HedgerA participant who already carries interest rate risk from a real business exposure and uses derivatives to remove it, rather than to take a view on the market.
- Interest Rate FuturesA standardised exchange-traded contract to buy or sell a notional government security, or an interest rate itself, at a price agreed today for settlement on a future date.
- Notional principalThe reference amount interest is computed on in a swap, FRA or money market futures contract — it sizes the exposure and the settlement, but it is never exchanged.
- Risk-free rateThe rate on a sovereign borrowing in its own currency, where credit risk is absent because the government can print the money — the benchmark every other valuation is measured against.
- Unit of tradingThe quantity in one contract — for Indian bond and T-Bill futures, notional bonds of Rs 2 lakh face value, which is 2,000 units of Rs 100 — and the reason exposures round rather than match.
- Discount yieldThe return on a discount instrument expressed against its face value on a 30-day month and 360-day year — the convention the 91-day T-Bill futures contract is quoted and settled on.
- SwaptionAn option on a swap — the right, not the obligation, to enter an interest rate swap at a predetermined strike rate on a future date, bought for a premium.