Question

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.

1. What is the contract price for the Eurodollar Futures Contract in dollars?

               Eurodollar Futures Price in Dollars ______________

What type of Eurodollar futures contract should be purchased (long or short)? Explain why.

   Long or Short _______    Why?_______________________

Answer 1

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)

= $1000000*98.10%

=$981,000

Hence,  Eurodollar Futures Price in Dollars = $981,100

Now, Type of future contract that should be purchase is Long Position

Because

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.