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Given an expected payment of 10 million USD in 3 months, assuming this amount needs to...

Given an expected payment of 10 million USD in 3 months, assuming this amount needs to be borrowed at 3M LIBOR (current quote of 6.25%), what is the implied interest rate on a Eurodollar future (3 month delivery) quoted at 93.280? Does it match the current interest rate? Why or why not?

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Answer #1

==> (100-93.280)/100

==> 6.72%

LIBOR rate today will be  = 6.25%

Therefore, this both rate are different because the Current Value of the LIBOR shows the current rate of interest prevailing into the market while implied future rate also consider the change to be expected in the future interest rate that is called Interest rate risk and due to such interest rate risk the future's interest rate is higher than the spot interest rate because it also considers the Interest rate risk of the money.

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