In February, a company wants to lock in the interest rate that will be earned for...

In February, a company wants to lock in the interest rate that will be earned for three months on a $9 million deposit to be made after seven months in September. The company decides to trade in Eurodollar futures and the September Eurodollar futures price is 98.50. Assume that in September the company closes out its position in the futures market when the LIBOR is 2.0% per annum and the futures price is 98.00. Assuming that the correct number of contracts were traded, what is the effective interest earned (in dollars) by the company on its deposit after taking into account the gain or loss in the futures market?

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Expert Solution

Effective interest earned by the company is $ 22500 after the loss of $11250 in the future contract.

Refer the working below :-

jeff jeffy answered 1 year ago

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