The following Eurodollar futures quotes were posted by Chicago Mercantile Exchan
ID: 2712449 • Letter: T
Question
The following Eurodollar futures quotes were posted by Chicago Mercantile Exchange (CME) on NOV 4, 2014.
OPEN
HIGH
LOW
CHANGE
SETTLE
MAR 2015
99.430
99.445
99.430
0.005
99.435
JUN 2015
99.370
99.395
99.370
0.010
99.375
SPE 2015
99.320
99.335
99.310
0.010
99.310
DEC 2015
99.235
99.270
99.235
0.015
99.240
Questions:
(1)What is the market’s expectation of the annualized 3-month LIBOR in December 2015?
(2)An investor purchased two MAR 2015 contracts at the price listed above. If the 3-month LOBOR is 0.875% per annum in March 2015, calculate the investor’s gain/loss.
(3)A MNC will borrow a 90-day floating-rate loan of $3,000,000 in Jun 2015. Construct a hedging strategy with Eurodollar futures for the MNC. Demonstrate that the use of Eurodollar futures would result in a fixed-rate loan. Assume the 3-month LIBOR in June 2015 will be either 1% per annum or 0.5% per annum, with equal probability.
OPEN
HIGH
LOW
CHANGE
SETTLE
MAR 2015
99.430
99.445
99.430
0.005
99.435
JUN 2015
99.370
99.395
99.370
0.010
99.375
SPE 2015
99.320
99.335
99.310
0.010
99.310
DEC 2015
99.235
99.270
99.235
0.015
99.240
Explanation / Answer
The following Eurodollar futures quotes were posted by Chicago Mercantile Exchan