The December Eurodollar futures contract is quoted as 98.40 and a company plans to borrow $8 million for three months
(a) What rate can then company lock in by using the Eurodollar futures contract?
(b) What position should the company take in the contracts?
(c) If the actual three-month rate turns out to be 1.3%, what is the final settlement price on the futures contracts.
Explain why timing mismatches reduce the effectiveness of the hedge.
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Question Posted: January 20, 2016 08:49:24