Schweser Mock BOOK 1 Pg.177 contract, long, because, Because, position

JonnyKay

#91, it says he should go long a Eurodollar future contract to hedge his position in a floating rate bond because if the rate does go down ,he can benefit from the futures contract, shouldnt it be go short a Eurodollar futures? Because I thought when you go long a futures, you gain when the rate increases, not when it decreases.

WarrenB1

I think the answers should say "if rates go up the price on his bond will fall. This fall in price will be offset by his long position in the Eurodollar futures contract".

Analyze_This

No you will benefit when the rate decreases, because you have fixed a LIBOR rate of 5% (assumed), that is you are going to lend someone money at 5% when the market rate is going to be less than that (you will pay a lower interest to the bond and receive a higher one)

Disclaimer: I have not seen the question