Company C is expecting to borrow $10M in 1 year for 3 months. C normally borrows...
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Company C is expecting to borrow $10M in 1 year for 3 months. C normally borrows at LIBOR plus 500 bps. Say that C has decided to lock in interest rates using Eurodollar futures (each contract is for $1M), which currently has a quoted price of 97. How many futures should C buy or sell? If the final settlement quote turned out as 98, then what is the P&L from the futures position and what is the combined payment with the hedge? Company C is expecting to borrow $10M in 1 year for 3 months. C normally borrows at LIBOR plus 500 bps. Say that C has decided to lock in interest rates using Eurodollar futures (each contract is for $1M), which currently has a quoted price of 97. How many futures should C buy or sell? If the final settlement quote turned out as 98, then what is the P&L from the futures position and what is the combined payment with the hedge?
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