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Title Eurodollar futures versus FRAs (a) Suppose in September 2011 we observe that the Eurodollar futures... Description Eurodollar futures versus FRAs (a) Suppose in September

Title Eurodollar futures versus FRAs (a) Suppose in September 2011 we observe that the Eurodollar futures... Description

Eurodollar futures versus FRAs (a) Suppose in September 2011 we observe that the Eurodollar futures prices for the March 2012, June 2012 and September 2012 contracts are all 98.00. Consider FRAs with these three maturities. Which FRA is likely to have the lowest rate?

(b) Suppose in September 2011, the March 2013 Eurodollar contract is 97.25 and the FRA for this date is quoted at 2.65%. If you are told that the futures price will not move over its life, what trade would you do? How about if you were told the FRA rate would not move?

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