On the CME Group website, a June Eurodollar Futures contract gives a price of 98.10% (i.e., a discount yield of 1.90%) for a $1 million, 90 day Eurodollar Futures contract.
Eurodollar Futures Price in Dollars ______________
What type of Eurodollar futures contract should be purchased (long or short)? Explain why.
Long or Short _______ Why?_______________________
Discount Yeild - 1.9%
Settlement Value of Futrue Contract - $1,000,000.00
Calculation of current price of Eurodollar future contract = Value of contract * (1 - discount yield)
Hence, Eurodollar Futures Price in Dollars = $981,100
Now, Type of future contract that should be purchase is Long Position
the future contract is at a discount hence
If we take Long Position
Buy now at $981000 and sell at settlement date at $1000000
Or pay now = $ 981000
Receive after 90 days= $1000000
Net Profit = $19000
If we take short Position
Sell now at 981000 and buy at settlement date at $1000000
Or Receive now = 981000
pay after 90 days =1000000
Net Loss = $19000
Hence we should take long position Here.
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