SOFR

SOFR is the Secured Overnight Funding Rate. It replaced the London Interbank Offered Rate or LIBOR as the benchmark for short-term interest rates. SOFR is considered to be a more accurate reflection of the current interest rate environment and is less susceptible to manipulation because it is based on actual lending contracts. SOFR is tied directly to the Treasury repo market. As a result SOFR contracts are secured loans with rates lower than the previous LIBOR rates. On the Series 3 exam, you will most likely see questions concerning market attitude or hedging questions. The SOFR contract has the same inverse pricing dynamics as other interest rate futures. If a scenario suggests rates are going to increase, the appropriate action is to sell SOFR contracts. Alternatively, if rates are falling a speculator would purchase SOFR futures. SOFR futures are priced on a discounted yield basis. If the SOFR contract was trading at 97, the corresponding interest rate would be 3 percent. For the Series 3 exam, It is important to keep in mind that the interest rate is an annualized rate. The most active contract for the SOFR is the 3 month contract. All SOFR contracts expiring in four months or less  trade with a ¼ point tick or 0.0025. The value of the quarter point tick is $6.25. All contracts expiring in more than four months trade in half point increments of 0.005. The value of the half point tick is $12.50. SOFR contracts are financially settled, meaning that the contract results in the delivery of cash. As for where you can find more SOFR related questions for the series 3 exam, we just added 30 questions to our Series 3 test bank based on student feedback.  If you would like to provide some details regarding the questions you saw, we will be happy to provide you with more guidance.