Suppose that you are a speculator who tries to time interest rate movements on three- month Eurodollar
Question:
a. What is the three- month Eurodollar rate in the cash market? (Approximate it from the yield curve.) How does it differ from the June 21, 2013 Eurodollar futures rate?
b. Use the data from the Treasury yield curve for three month and six month maturities to calculate the three month forward rate (three months as of June 21, 2013).
c. Compare the forward rate you calculated from Part b with the September 2013 Eurodollar futures rate. Do they provide similar information? Should they provide similar information?
d. As a speculator, you expect cash Eurodollar rates to rise through December 2014. 1. Explain precisely what expectations are consistent with selling the December 2014 Eurodollar futures contract to make a profit. 2. Explain precisely what rate expectations are consistent with buying the December 2014 Eurodollar futures contract to make a profit.
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Step by Step Answer:
a 3 month cash Eurodollar rate is approximately 030 based on the LIBOR swap curve data in Exhibit 92 ...View the full answer
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