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An investor wants to lock in the interest rate for a three-month period beginning September...

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Finance

An investor wants to lock in the interest rate for a three-month period beginning September 18, 2019 on a principal of $100 million. The September 2019 Eurodollar futures quote is 97.25. Suppose that on September 18, 2019, the three-month Eurodollar rate turns out to be 2.5%.

1) How could this investor achieve his/her goal by trading Eurodollar futures? Explain

2) Alternatively, this investor could use forward rate agreements to lock in the interest rate. Compare and contrast forward rate agreements and Eurodollar futures in terms of interest rate risk hedging.

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