You Will Receive $10 Million at the End of June $\bullet$

question 44

Essay

You will receive $10 million at the end of June and will invest it for three months on the Eurodollar market. The current three-month Eurodollar rate is 6%, and you are worried that the rate will drop by the end of June. Here are some market quotes:
$\bullet$ Eurodollar LIBOR futures, June delivery: Price 94%.
$\bullet$ Call eurodollar, June expiration, strike price 94%: Premium 0.4%.
$\bullet$ Put Eurodollar, June expiration, strike price 94%: Premium 0.4%.
The contract sizes are $1 million.
a. Should you buy or sell futures to hedge your interest rate risk?
b. Should you buy (or sell) calls (or puts) to insure a minimum rate at the time you will invest your money? What is this rate?
c. In June, the Eurodollar rate has moved to 4%. What is the result of your strategies using futures and using options?
d. What if the rate is equal to 8% in June?

---

Definitions:

Ecological Views

Perspectives or considerations regarding the relationships between living organisms, including humans, and their physical environment.

Logo Redesign

The process of modifying or updating a company's logo to refresh the brand identity or better align with current trends.

Reduces Packaging

The practice of limiting the amount of wrapping or protective material used on products as a means to reduce waste and environmental impact.

Sustainable Consumer Behavior

Purchasing habits that consider the long-term impact on the environment and society, aiming to reduce negative effects.