(1) As a speculator, if you expect the LIBOR rate to go up, what should be your trading strategy on Eurodollar futures contract? (clearly indicate if you will buy or sell Eurodollar futures contract)
(2) Please state True or False and explain why.
"As a buyer on a Eurodollar futures contract, you are obligated to take a delivery of a 3-month, $1 million face value Eurodollar time deposit".
(1)
You should sell the Eurodollar futures contract.
This is because Eurodollar futures fall if interest rate rise. Thus, a short position in a Eurodollar futures contract will gain if LIBOR rate goes up.
(2)
True
A long position in any futures contract is obliged to take delivery of the underlying asset, and a short position in any futures contract is obliged to deliver the underlying asset.
In a Eurodollar futures contract, the underlying asset is a Eurodollar time deposit.
Thus, as a buyer on a Eurodollar futures contract, you are obligated to take a delivery of the Eurodollar time deposit.
Get Answers For Free
Most questions answered within 1 hours.