Suppose that it is December 2019, and a bank expects to sell a 3-month $1m Eurodollar CD in Feb. 2020. Assume that the market rate in Jan. 2020 is 4.56%. On Feb. 2020, the rates become 4.32%. Assume that the bank can hedge its exposure using the Eurodollar futures contracts and that the current available futures rate of March 2020 is 4.87%. Also, assume that on Feb. 2020, the March futures rate become 4.62%. You need to set-up a table that shows (1) profit and loss profile of the bank hedge operation; (2) the effective cost of the bank CD.

Date Cash Mkt Futures Mkt Basis

Dec 2019

Feb 2019

Net effect

Cumulative effect