Question

Consider the same facts as the previous problem, only nowconsider hedging with the 3-month Eurodollar futures. Suppose the Eurodollar futures contract that matures 60 days from today has a price on day 0 of 94.
a. What issues arise in using the 3-month Eurodollar contract to hedge a 150-day loan?
b. If you wish to hedge a lending position, should you go long or short the contract?
c. What 3-month LIBOR is implied by the Eurodollar futures price? Approximately what lending rate should you be able to lock in?
d. What position in Eurodollar futureswould you use to lock in a lending rate? In doing this, what assumptions are you making about the relationship between 90-day LIBOR and the 150-day lending rate?


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  • CreatedAugust 12, 2015
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