Series 3: Exercise

Exercise

Answer the following questions.

1. 1. In which of the following ways do Eurodollar futures differ from Treasury bill futures?
2. I. The underlying security for Eurodollar futures bears interest, while the underlying security for T-bill futures bears no interest.
3. II. Eurodollar futures contracts are always cash settled, while T-bill futures are never cash settled.
4. III. Eurodollar futures have a higher contract value than T-bill futures.
5. IV. A change of one basis point for Eurodollar futures is worth $25 per contract; a change of one basis point for T-bill futures is worth $12.50 per contract.
6. A. I and II
7. B. I and III
8. C. II and III
9. D. III and IV
10. 2. If the 90-day LIBOR rate is 3.3%, what is the quoted price of a Eurodollar futures contract?
11. A. 3.3
12. B. 96.7
13. C. 103.3
14. D. More information is needed to answer this question
15. 3. An investor with a portfolio that is heavily weighted toward bonds is concerned that interest rates will rise, in turn diminishing his portfolio’s value. If the investor’s bond investments have a face value of $4 million and mature in six months, which choice represents his best option to hedge against interest rate risk?
16. A. Short four Eurodollar futures contracts
17. B. Go long four Eurodollar futures contracts
18. C. Short eight Eurodollar futures contracts
19. D. Go long eight Eurodollar futures contracts
20. 4. A speculator has a long position in a Eurodollar futures contract at 94.32. At the close of the following business day, the Eurodollar futures contract 94.22. One basis point is $25 for a Eurodollar futures contract. What will happen to his account?
21. A. It will be credited by $250
22. B. It will be debited by $250
23. C. Nothing
24. D. It will be debited by $40
25. 5. A speculator shorts a Eurodollar futures contract. By the end of the next day, the IMM Euro