KungFuPanda

If I am long a floating rate LIBOR position then what is my gain or loss exposure? I lose when rates decline and win when rates increase. I need to hedge against my losses so I need some type of protection for when rates decline.

Think about the inverse relationship between rates and fixed income securities. If rates decline then that make Eurodollar futures contract increase in value. Therefore I need to go long Eurodollar Futures to hedge my long floating LIBOR position. If I shorted the Eurodollar Futures contract I would have double loss exposure to declining LIBOR rates.