You are given the following quote for Eurodollar futures prices on Wednesday, 3/23/22:

 

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
APR 22	98.9100	98.9350	98.8750	98.9075	+.0175	98.9125	27,626	240,825
MAY 22	98.6550	98.6950	98.6300	98.6600	+.0150	98.6750	12,808	88,620
JUN 22	98.4600	98.4600	98.4000	98.4350	+.0100	98.4450	238,467	1,064,087

 

1. John Jones wants to hedge a floating rate interest payment on a $3.2 million loan.  The next quarterly interest payment is determined according to a 3-month LIBOR on May 1, 2022.  How could he use Eurodollar futures to do it?

2. If he entered into the futures position at Monday's close of 98.75, what would be his cash flow due to marking to market on Tuesday and on Wednesday?

3. What is the value of his futures position on Monday?

4. If on May 1, 2022, the 3-month LIBOR turns out to be 1.45% p.a., Eurodollar futures price 98.65, what would be the total cost to John Jones taking into account gains/losses on his hedge, plus the interest payment (disregard time value of money)?

Answer rating: 100% (QA)

Hedging John Jones Loan Payment with Eurodollar Futures 1 Using Eurodollar Futures for Hedging John ... View the full answer