Hi,
These are 3 investment scenario mentioned below in page# 4"https://www.cmegroup.com/trading/interest-rates/files/understanding-eurodollar-futures.pdf"
E.g., consider the following interest rate structure in the Eurodollar (Euro) futures and cash markets. Assume that it is now December. Which is the better investment for the next six months - (1) invest for 6 months at 0.80%; (2) invest for 3 months at 0.70% and buy March Euro futures at 98.10 (0.90%); or (3) invest for 9 months at 0.90% and sell June Euro futures at 98.96 (1.04%)? Assume that these investments have terms of 90- days (0.25 years); 180-days (0.50 years); or, 270- days (0.75 years).
But I'm not able to interpret the 3rd scenario transaction highlighted in red, what does it mean really
"The 3rd alternative means that you invest for the next 270 days at 0.90% and sell June Eurodollar futures at 1.04%, effectively committing to sell the spot investment 180 days hence when it has 90 days until maturity. This implies a return of 0.83% over the next 6-months."
These are 3 investment scenario mentioned below in page# 4"https://www.cmegroup.com/trading/interest-rates/files/understanding-eurodollar-futures.pdf"
E.g., consider the following interest rate structure in the Eurodollar (Euro) futures and cash markets. Assume that it is now December. Which is the better investment for the next six months - (1) invest for 6 months at 0.80%; (2) invest for 3 months at 0.70% and buy March Euro futures at 98.10 (0.90%); or (3) invest for 9 months at 0.90% and sell June Euro futures at 98.96 (1.04%)? Assume that these investments have terms of 90- days (0.25 years); 180-days (0.50 years); or, 270- days (0.75 years).
But I'm not able to interpret the 3rd scenario transaction highlighted in red, what does it mean really
"The 3rd alternative means that you invest for the next 270 days at 0.90% and sell June Eurodollar futures at 1.04%, effectively committing to sell the spot investment 180 days hence when it has 90 days until maturity. This implies a return of 0.83% over the next 6-months."
