In the case where one needs to borrow an amount of $8,000,000 for 91 days at LIBOR beginning next September, there will be a possibility of increase in interest rates from the start of present time to the month of September. An perfect hedge will be taken by entering an short position on Eurodollar futures which will result in reducing the risk against increase in interest rates.
Suppose we wish to borrow $8,000,000 for 91 days at LIBOR beginning next September. In this case, we might want to hedge against a potential (Increase) in interest rates between now and September by taking a (short) position in Eurodollar futures.
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