Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A lender will be having £10 million to lend from December to March next year. Right now, the December Eurodollar futures contract has price 94. If the lender uses 10 December Eurodollar futures to hedge his future lending, does he long or short futures? If the 3-month LIBOR in December turns out to be 1.2% (3-month effective), how much money does the lender get in March from his hedged lending of £10 million?
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