What position do you take in the futures to hedge

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It is April 17th and your cash forecast indicates you will have $14,000,000 available for a 65-day investment on August 14th. You plan to invest the cash in 65 day T-bills and decide to hedge the interest rate risk on the planned investment with the September Eurodollar futures contract (the contract is on 90 day instrument with face value of $1,000,000). The spot quote on 65 day bills is a discount quote of 2.16 (price quote 97.84) and the Sept. Eurodollar futures price is a discount quote of 2.87 (price quote 97.13). What position (buy or sell and # of contracts) do you take in the futures to hedge? What is the effective rate earned on the 65 day bill if on August 14th the spot quote is a discount quote of 1.81 and the Sept. Eurodollar futures price is a discount quote of 2.54?

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Reference no: EM131543343

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