Your bank, Orbit Plc, is a regular borrower in the Eurodollar market. On 9 August 2020, the head of the fund management division decided to hedge the banks interest cost on a US$10 million three-month Eurodollar issue scheduled for November 2020. On 9 August, the bank could issue US$10 million in three-month Eurodollars at 4.61%. The corresponding futures rates for the three-month Eurodollar futures contracts are 4.83% (December 2020), 5.01% (March 2021), and 5.38% (June 2021). Required: A. What is the banks specific cash market risk on 9 August 2020? [2 MARKS] B. Should the bank buy or sell Eurodollar futures to hedge its borrowing costs? Explain how the hedge should work. [4 MARKS] C. Which Eurodollar futures contract should the bank use? Explain why it is best. [2 MARKS] D. Assume that the bank takes the futures position that you recommended above at the rate available on 9 August 2020. On 6 November 2020, the bank issues US$10 million in Eurodollars at 6.25%. Coincidently, it closes out (reverses) its futures position when the futures rate on the contract you chose equals 6.33%. Calculate the profit or loss on the futures trades, the opportunity gain or loss in the cash market, and the effective return or cost to the bank on its Eurodollar issue. [12 MARKS]