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Question: The December Eurodollar futures contract is quoted as 98.40 and a company plans to borrow $8 million for three months starting in December at LIBOR plus 0.5%.

(a) What rate can then company lock in by using the Eurodollar futures contract?

(b) What position should the company take in the contracts?

(c) If the actual three-month rate turns out to be 1.3%, what is the final settlement price on the futures contracts. Explain why timing mismatches reduce the effectiveness of the hedge.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92803260

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