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Using the chart below: Open High ...

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Question

Finance

Using the chart below:

Open

High

Low

Settle

Dec 2019

97.29

97.445

96.430

97.31

Mar 2020

98.12

99.395

98.070

98.13

Jun 2020

98.95

99.335

98.310

98.97

Sep 2020

98.87

99.270

98.235

99.86
  1. What is the markets expectation of the annualized 3-month LIBOR in March 2020?
  2. Assume an investor purchased one SEP 2020 contracts at the price listed above. If the 3-month LIBOR is 0.25% per annum in September 2020, calculate the investors gain/loss.
  3. A MNC will borrow a 90-day floating-rate loan of $3,000,000 in Jun 2020. Construct a hedging strategy with Eurodollar futures for the MNC. Demonstrate that the use of Eurodollar futures would result in a fixed-rate loan regardless the actual LIBOR in June 1. Assume the actual 3-month LIBOR in June is either 1.13% per annum or 0.83% per annum with equal probability.

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