# Eurodollar futures contract Ques

A Trader buys a Eurodollar futures contract, \$1 million Face Value, at 98.14 and closes it out at a price of 98.27. On this contract the traader has A. lost \$325 B. gained \$325 C. lost \$1300 D. gained \$1300 - Dinesh S

B – (98.27-98.14)*25 = \$325

1. Eurodollar represents 25\$ per 1 million contract per .01%. 2. Eurodollar futures are based on 90 day LIBOR which is an Add on yield - and price is calculated as (100 - annualized Libor in %). Price of Future rose -- so buyer has a gain = 13 \* 25 = 325. Choice b. CP

You guys are correct… ‘B’ is the correct answer but then why did I do it this way? 98.27% - 98.14% = 0.13% = 0.0013 0.0013*1m = +1300 (Ans D) Is this something that we have to remember - "Eurodollar represents 25 per 1 million \$ contract per .01%."? how did \$25 come into play? - Dinesh S

pretty much…

Dinesh…your methodology isn’t wrong…except for the fact that Eurodollar contracts are for 90 days, whereas interest rates are quoted annually, thus you would need to multiply \$1,300 with 90/360 [98.27% - 98.14%]*90/360 * \$1M = \$325 As for the \$25 thing…thats a neat short cut. 1 tick (1bp) = \$25 suppose price of a contract (IMM index) goes from 96 to 96.01 (discount rate decreases from 4% to 3.99%). Prices changes by \$1M * [1 - 0.04*90/360] = \$990,000 to \$1M * [1 - 0.0399*90/360] =\$990,025

delhirocks Wrote: ------------------------------------------------------- > Dinesh…your methodology isn’t wrong…except for > the fact that Eurodollar contracts are for 90 > days, whereas interest rates are quoted annually, > thus you would need to multiply \$1,300 with 90/360 You are correct… but in that case, we need to remember that the Eurodollar is a 90-day Eurodollar because nowhere in the problem there was a mention of a 90-day Eurodollar. - Dinesh S

A standard Euro dollar future contract traded at Chicago Merchantile exchange is based on 90 day LIBOR. (pg 95, CFAI)

It is one of the most liquid securities on Earth. A finance professional really ought not to have to “remember” Eurdollar contracts. The notional size of Eurodollar contracts traded everyday is well into the trillions of dollars… Edit1: Oh and check out the difference in volume between RTH CME and Globex. There is almost 20 times more volume on Globex. I’d say this is gettng to be an electronic contract not a CME contract. Edit2: That means that the daily notional volume in ED is on the same order as the capitalization of the NYSE. That’s volume vs capitalization.

Joey, do I also need to be aware of all the following (rigid??) contracts 1. T-bill Futures (Face Val = \$1m) contracts are cash settled. 2. Eurodollar Futures (Face Val = \$1m) are cash settles and are based on 90-day LIBOR and have annualized-LIBOR’s and of course the very famous \$25 trick 3. T-Bonds (Face Val = \$100K) are delivery settled and Delivery-Option is always with the short, so that they could look-up the multiplier and calculate the rear-delivery-settlement price (after the bond delivery choice is made). 4. Currency-Futures are Delivery Settled (then how are they different than what I learnt in Currency-Swaps??). I know for sure that Stock-Index Futures cannot be delivery settled (Or else I would love to order for an S&P-500 index to my shipping address :-)). Could you comment on their rigidity/flexibility? What if I was genuinely interested in a loan, 90-days from now? Schweser says that FRA’s are cash-settled. Would appreciate, if someone could throw some light on these futures contracts, Are these industry standards or Schweser made them all up. Since I am new to the industry & just trying to get my basics straight. - Dinesh S