Exercise
Answer the following questions.
1. Which of the following is not true of Eurodollar futures?
A. The underlying security for Eurodollar futures bears interest.
B. Eurodollar futures contracts are always cash settled.
C. Eurodollar futures have a $100,000 contract value.
D. A change of one basis point for Eurodollar futures is worth $25 per contract.
2. If the anticipated 90-day LIBOR rate is 3.3% for the month of September, what is the quoted price of a September Eurodollar futures contract?
A. 3.3
B. 96.7
C. 103.3
D. More information is needed to answer this question
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?
A. Short four Eurodollar futures contracts
B. Go long four Eurodollar futures contracts
C. Short eight Eurodollar futures contracts
D. Go long eight Eurodollar futures contracts
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 is at 94.22. One basis point is $25 for a Eurodollar futures contract. What will happen to his account?
A. It will be credited by $250
B. It will be debited by $250
C. Nothing
D. It will be debited by $40
5. A speculator shorts a Eurodollar futures contract at 93.82. By the end of the next day, the IMM Eurodollars index increases to 94.12. What will happen to his account?
A. It will be credited by $500
B. It will be debited by $750
C. Nothing
D. It will be debited by $500
Answers
1. C. The underlying security of Eurodollar futures is an interest-bearing instrument. A Eurodollar futures contract is always cash settled and has a contra