Eurodollar Futures

CFA Level I Derivatives
#1

Hello All,

I am reading “Eurodollar futures are priced such that the long position gains when interest rates decrease, but FRA and interest rate call options are priced such that long benefits when interest rates increase”

Two questions –

#1- I see what they are saying, but I believe the same is true for Eurodollar time deposits as well. This is because time deposits and eurodollar futures are based on discount basis. Isn’t it? Hence, lower the rate, the higher selling price.

#2- Is this applicable only to futures or to forwards as well? Just curious.

Thanks in advance.

#2

eurodollar futures are priced like bonds. if interest rates drop, bond prices rise, so if you are long bonds or eurodollar futures, you gain when interest rates drop.

there are no eurodollar forwards… there are only eurodollar futures. of course however, forwards can be customized to any specification, so you could get a bank to make you a market in a product equivalent to a eurodollar future