A trader buys a 90-day Eurodollar futures contract at 95.25. The next day, interest rates fall to 4.5%. Which of the following is true? Assume that the initial and maintenance margins are $5,000.
A) The trader would have to deposit an additional $5,000 into her account.
B) The trader would have to deposit an additional $2,500 into her account.
C) The trader would have to deposit an additional $625 into her account.
D) The trader could withdraw $2,500 from her margin account.
E) The trader could withdraw $625 from her margin account.

Question

Quizplus · Accepted Answer

Eurodollar futures prices are calculated as 100 minus the interest rate. If the interest rate falls to 4.5%, the new futures price would be 100 - 4.5 = 95.5. The trader bought at 95.25, so the price has increased by 0.25 points. Each point is worth $25, so the increase is worth $25 * 0.25 = $625. Since the trader's position has gained value, they could withdraw $625 from their margin account.

A Trader Buys a 90-Day Eurodollar Futures Contract at 95