The December Eurodollar futures contract is quoted as 98.40 and a company plans to borrow $8 million for three months
Question:
(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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Step by Step Answer:
a The company can lock in a 3 month rate of 100 98 …View the full answer
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Question Posted: January 20, 2016 08:49:24