Question
A bank can borrow or lend money at the same interest rate in the LIBOR market. The 180 day rate is 5.0000% and the 270
A bank can borrow or lend money at the same interest rate in the LIBOR market. The 180 day rate is 5.0000% and the 270 day rate is 5.3333% both expressed with continuous compounding and a 365 day year. The 3-month Eurodollar futures price quote for a futures contract with a delivery date in 6 months is 94. The size of the Eurodollar futures contract is $1 million. Use this information to answer this and the next question. Which of the following is the correct arbitrage strategy?
a. Invest at the 270 day LIBOR rate, borrow at the 180 day LIBOR rate, sell the Eurodollar futures contract
b. Borrow at he 270 day LIBOR rate, invest at the 180 day LIBOR rate, sell the Eurodollar futures contract
c. Borrow at the 270 day LIBOR rate, invest at the 180 day LIBOR rate, buy the Eurodollar futures contract
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