Question
You are the CFO of a company and plan to invest in some R&D in nine months. However, you don't have cash on hand so
You are the CFO of a company and plan to invest in some R&D in nine months. However, you don't have cash on hand so you will borrow $85,000,000 for three months. You are afraid LIBOR rates will increase before you borrow in nine months, so you want to use Eurodollar futures to hedge against a rise in rates. Should you buy or sell Eurodollar futures? How many contracts (factoring in the present value of a rise in rates) do you need if the twelve-month LIBOR rate is currently 3.1%? You can round the number of contracts to the nearest whole number. Assume every month has 30 days.
Sell Eurodollar futures
82 contracts
Sell Eurodollar futures
58 contracts
Sell Eurodollar futures
50 contracts
Buy Eurodollar futures
59 contracts
Buy Eurodollar futures
63 contracts
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started