Finance Junkie
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Postby AMITAG1990 » Mon Nov 12, 2012 6:09 pm

A bank will finance a 1 yr loan with a series of four 3- month eurodollar issues. the bank will hedge their financing risk in the eurodollar futures mkt. the hedge suffer from which of the following problem..

1) Liquidity mismatch because the 1 yr loan is illiquid and the future contract is very liquid

2) Interruption in the convergence of the spot and future as the eurodollar mkt is actively traded and often deviate from converging rates.

Please explain the logic to solve it..


Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: Eurodollar

Postby content.pristine » Thu Nov 15, 2012 8:47 pm

This is very similar and involves the commodities concept called the "Stack and Roll Hedge". Google our link: Stack and Roll Hedge + Edupristine. And we have a good case study that explains the entire concept.


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