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a.) An investor expects to receive a large payment in one year, which he plans to invest for three month. He is worried that the
a.) An investor expects to receive a large payment in one year, which he plans to invest for three month. He is worried that the 3-month interest rate will fall in one year. How could he use Eurodollar futures contract to hedge against a fall in the interest rate? b.) Currently, the one-year Eurodollar futures contract has a quote of 96. What is the implied 3-month forward rate on LIBOR in one year? c.) Suppose right before the contract expires in one year, the 3-month LIBOR rate drops to 3%. If the investor has taken positions in 100 such contracts, what will be the payoff? a.) An investor expects to receive a large payment in one year, which he plans to invest for three month. He is worried that the 3-month interest rate will fall in one year. How could he use Eurodollar futures contract to hedge against a fall in the interest rate? b.) Currently, the one-year Eurodollar futures contract has a quote of 96. What is the implied 3-month forward rate on LIBOR in one year? c.) Suppose right before the contract expires in one year, the 3-month LIBOR rate drops to 3%. If the investor has taken positions in 100 such contracts, what will be the payoff
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