What position should the firm take to hedge its liability

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Reference no: EM131979016

A firm will need to borrow $15 million for three months, starting 2 years from today, at LIBOR plus 1%. If the current Eurodollar futures contract maturing in 2 years is quoted at 97.50, what is the interest rate the firm can lock in if it hedges this liability using Eurodollar futures (answer as a percent with two decimal place accuracy)? what position should the firm take to hedge it’s liability? if the actual three-month LIBOR rate increases to 4% in two years, what is the gain on the firm’s futures position (answer in $)?

Reference no: EM131979016

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