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Should a long or short hedge be used

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Reference no: EM13281596

The Economic Research Department of a large savings bank company forecasts an increase in interest rates over the next two months. The bank currently has $20 million in CDs costing 6%. The bank's investment managers (as practice) hedge against expected increase in interest rates by trading twenty Eurodollar futures contracts with a minimum contract value of $1 million.

a. Should a long or short hedge be used? Why?

b. Based on the following information, calulate the net gain or loss on the hedge.

 

Reference no: EM13281596

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