Essence Investments, a hedge fund, has invested in a USD 1 million mortgage portfolio earning an average interest of LIBOR +3%. Its internal research has indicated that interest rates are going to drop substantially. It wants to lock in the high interest it has been receiving by using Eurodollar futures contract [notional principal = USD 1,000,000]. Eurodollar futures for 3 months from now settled at 94.88.

a) Essence Investments should take a _____ position on the Eurodollar futures

b) If the actual floating interest rate 3 months from now is 4%, what did the company gain or lose (given the position in part a above)?

long / USD 2,800

short / USD 2,800

long / -USD 2,800

short / -USD 2,800