What are Eurodollar futures?

Eurodollar futures are interest-rate-based financial futures contracts specific to the Eurodollar, which is simply a U.S. dollar on deposit in commercial banks outside of the United States.

How do you trade Eurodollar interest rates futures?

Eurodollar futures contracts are traded through a price index. The value of the index is calculated by subtracting the interest rate of the futures contract from 100. For example, if the interest rate is set at 3\%, the index price is equal to $97 (100 – 3 = 97).

What is TED spread used for?

The TED spread is the difference between the three-month LIBOR and the three-month Treasury bill rate. The TED spread is commonly used as a measure of credit risk, as U.S. Treasury bills are seen as risk-free.

Is Eurodollar a currency?

Eurodollars should not be confused with the currency of the European Union which is known as the euro. A Eurodollar and a euro are not the same thing. Eurodollar is a term that refers to any United States dollar (“U.S. dollar”) held outside the U.S. banking system.

What does the LIBOR rate tell us?

The London Interbank Offered Rate, more commonly known as LIBOR, is one of the most widely used benchmarks for determining short-term interest rates across the world. It indicates the average rate at which large banks in London can borrow unsecured short term loans from other banks.

What are Eurodollars used for?

A Eurodollar future is a cash settled futures contract whose price moves in response to the LIBOR interest rate. Eurodollar futures are a way for companies and banks to lock in an interest rate today, for money they intend to borrow or lend in the future.

Do Eurodollar futures have convexity?

The amount of the convexity is small at the short end of the curve. The example is using a three-month FRA and Eurodollar futures. Further out on the curve the convexity increases and sometimes dramatically.

What is today’s LIBOR rate?

LIBOR, other interest rate indexes

What is LIBOR spread?

The LIBOR-OIS spread represents the difference between an interest rate with some credit risk built-in and one that is virtually free of such hazards. Therefore, when the gap widens, it’s a good sign that the financial sector is on edge.