Hi Guys! From Schwezer StudyNotes Being Long FRA means to have the right to BORROW at a specific rate while being Long EURODOLLAR means having the right to LEND at a specific rate.
Is this difference correct? or am I getting confused??
thank you!
Eurodollar future allow an investor to lock in an interest rate at certain date.I think it’s nothing to do with lending…
Hey Frank,
But the idea is that in the future you lock a rate as if you were to lend to someone… its a future lending contract… if buy a 1.000$ - 5% Eurodollar Future Contract means that I am guaranteing a lending rate of 5% in the future…
FRA in the other hands, means that if I am long a 1000$ 5%, I have the right to Borrow at 5% in the future…
that’s what I want to confirm.
even i got confused in it…
but think of it this way “the long gains by the appreciation of the underlying”
FRA is basically a contract on interest rates…so the long in FRA is the one who gains from interest rates rising,which would be the borrower as he will now borrow at a lower rate and reinest at a higher rate.
EURODOLLAR is like a bond…the long gains when bond price goes up i.e ur a bondholder…and a bondholder lends.money
FRAs have nothing to do with borrowing or lending, the underlying is just an interest rate.
FRA is like a contract to borrow or lend although the borrowing or lending never takes place as it is cash settled!!
just like futures arr contracts to buy something in the future but arr actually cash settled
An FRA is like a contract to borrow _ and _ lend, not borrow or lend.