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130
Which of the following is true?
A.The futures rates calculated from a Eurodollar futures quote are always less than the corresponding forward rate
B.The futures rates calculated from a Eurodollar futures quote are always greater than the corresponding forward rate
C.The futures rates calculated from a Eurodollar futures quote should equal the corresponding forward rate
D.The futures rates calculated from a Eurodollar futures quote are sometimes greater than and sometimes less than the corresponding forward rate
A.The futures rates calculated from a Eurodollar futures quote are always less than the corresponding forward rate
B.The futures rates calculated from a Eurodollar futures quote are always greater than the corresponding forward rate
C.The futures rates calculated from a Eurodollar futures quote should equal the corresponding forward rate
D.The futures rates calculated from a Eurodollar futures quote are sometimes greater than and sometimes less than the corresponding forward rate
Answer: B
The futures rate must be reduced by what is known as a convexity adjustment to get the forward rate.
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015