A trader uses 3-month Eurodollar futures to lock in a rate on $5 million for six months. How many contracts are required?

A. 5
B. 10
C. 15
D. 20

B

Each contract locks in the rate on $1 million dollars for three months. A six month instrument is approximately twice as sensitive to rate movements as a three month instrument because it has twice the duration. 2×5 = 10 contracts are therefore required