Question
You are the CFO of a company and plan to invest in some R&D in nine months. However, you dont 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 dont 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 58 contracts Sell Eurodollar futures 50 contracts Buy Eurodollar futures 59 contracts Buy Eurodollar futures 63 contracts Sell Eurodollar futures 82 contractsStep by Step Solution
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