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I am not quite clear about this.

  1. When people mention Eurodollar are they mean Eurodollar Futures?
  2. One of the difference between Eurodollar and Forward Rate Agreement(FRA) is basically difference between futures and forward, which means daily settlement for futures. Is there anything else?
  3. If Eurodollar and FRA are both used to lock interest rate, are these same as Interest Rate Swap?

Thanks

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1 Answer

up vote 4 down vote accepted
  1. Yes. Although sometimes people mean the Euro/Dollar currency pair which can cause confusion.

  2. Besides the daily mark-to-market, the counter-party risk is also removed through the clearing house for the futures.

  3. No. Eurodollar and FRA are not the same as swaps. A Eurodollar fixes an interest rate for a three month period in the future whereas a swap represents the different cash flows between floating and fixed rates during a period. However, the cash flow of a plain vanilla swap can be replicated with a sequence (strip) of Eurodollar contracts.

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