1. A pension fund anticipates investing 1 Million USD dividend payments from its portfolio for 90 days starting in June. The fund is concerned about a drop in interest rates, so it decides to hedge on May 15 using Eurodollar futures. The June Eurodollar futures trades on May 15 at 95.225. Set up the hedge. On June 15, when the hedge is lifted, the June Eurodollar futures quote is 96.375. Assuming a June basis of -0.3% what is the effective rate the pension fund receives on its deposit?

2. A speculator observes that distant 90-day interest rates are significantly lower than the nearby 90-day rates. The speculator expects the yield curve to flatten and sets up a spread on July 15. The Eurodollar futures that day trade at 96.775 for the September contract and 97.850 for the December contract. A month later, on August 15, the speculator lifts the spread at 95.925 for the September contract and 96.625 for the December contract. What is the speculator's gain or loss?