Financial Risk Manager Part 1

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Explanation:

A borrower who wants to hedge against rising LIBOR should take the short side of the Eurodollar futures contract, because the short position gains when the futures price falls.

Quote moves from 98.00 to 97.00 when LIBOR rises from 2.0% to 3.0%
Price change = 1.00 point
Each 1.00 point = $2,500 per contract
For 3 contracts: $3 \times 2{,}500 = 7{,}500$

So the trade is short three contracts, with a gain of $7,500.

Explanation:

A borrower who wants to hedge against rising LIBOR should take the short side of the Eurodollar futures contract, because the short position gains when the futures price falls.

Quote moves from 98.00 to 97.00 when LIBOR rises from 2.0% to 3.0%
Price change = 1.00 point
Each 1.00 point = $2,500 per contract
For 3 contracts: $3 \times 2{,}500 = 7{,}500$

So the trade is short three contracts, with a gain of $7,500.

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Question 172.2. A company plans to borrow `$3.0` million for three months starting in one year. The Eurodollar futures contract that matures in one year has a quoted price of 98.00 and the company wants to (net) effectively lock-in this 2.0% LIBOR interest rate. At the end of one year, LIBOR increases to 3.0%. The company’s borrowing (at the higher 3.0% LIBOR) will increase but will be hedged by the gain on the Eurodollar futures contract. What is the futures trade and what is the gain on the futures contract only?

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MManit

Last updated: April 18, 2026 at 11:32

Long one contract for a gain of $2,500

50.0%

Long three contracts for a gain of $7,500

50.0%

Short one contract for a gain of $2,500

Short three contracts for a gain of $7,500