Eurodollar futures question, interest, understand, why

hoangvu90

Can someone explain to me in simple terms how Eurodollar futures work.

Particularly, I want to understand why shorting eurodollar futures could be used as a strategy to reduce interest rate risk when someone has shorted a floating rate bond (Schweser qbank question id #88538)

xilinx_altera

You are short a floating rate bond. This means you want rates to go down. Therefore, you fear rates going up. You want to find a way to take advantage of higher future rates. If you short a eurodollar future that means you will be able to sell the future at a later time, when the rate will be higher, thus taking advantage of higher future rates and hedging your short floating rate bond position.

kingstongal

it's just a type of interest future. think the buyer wants to borrow money at the contracted LIBOR rate and everything else is solved.