Suppose there is a Eurodollar futures contract listed on the IMM that expires at the same time as the FRA in Question 18.

a. What would Cagle’s FRA equivalent positions be using the Eurodollar futures?

What would Cagle’s cash flows be from the equivalent Eurodollar futures if the LIBOR were 5% and 6% at expirations?

b. What would Sun National Bank’s FRA equivalent positions be using the Eurodollar futures? What would Sun National’s cash flows be from the equivalent Eurodollar futures if the LIBOR were 5% and 6% at expirations?

c. Explain how Sun Bank could hedge its FRA in Question 18 by taking a position in the Eurodollar futures contract. Using a table, evaluate their hedge position (net position in Eurodollar plus FRA) at possible LIBORs at the FRA and Eurodollar futures expiration of 5%, 5.25%, 5.5%, 5.75%, and 6%.