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Eurodollar futures contracts based question

Illustrate how the bank can employ a position alternatively in Eurodollar futures contracts to hedge the interest rate risk formed by the maturity mismatch it has with the $3,000,000 six-month Eurodollar deposit & rollover Eurocredit position indexed to three-month LIBOR. Suppose the bank can take a position in Eurodollar futures contracts maturing in three months' time which have a futures price of 94.00.

To hedge the interest rate risk formed by the maturity mismatch, the bank would have to purchase (go long) three Eurodollar futures contracts. If on the final day of trading, three-month LIBOR is 5 1/8%, the bank will earn a profit of $6,562.50 from its futures position. It is calculated as:

                 [94.875 - 94.00] x 100 bp x $25 x 3 contracts = $6,562.50.

Note down that this sum differs slightly from the $6,550.59 profit which the bank will earn from the FRA for two causes. Firstly, the Eurodollar futures contract supposes an arbitrary 90 days in a three-month period, while the FRA recognizes that the actual number of days in the particular three-month period is 91 days. Secondly, the Eurodollar futures contract pays off in future value terms, or as of the end of the three-month period, whereas the FRA pays off in present value terms, or as of the starting of the three-month period.

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