The Chicago Mercantile Exchange, where Rick Santelli (of CNBC) reports from, trades trillions of dollars in hedge funds (swap accounts) that are tied to the LIBOR rate.
On Friday, August 5, Standard & Poor's downgraded the credit rating on U.S. sovereign debt. The ensuing whirlwind of market volatility reinforced the need for deep liquidity that allows for the quick decisive action necessary to manage risk in an uncertain environment. CME Group's Eurodollar Futures and Options once again delivered that liquidity.
On August 5, our Eurodollar volume exceeded 5.3 million contracts (notional value of $5.3 trillion). The next few business days registered Eurodollar volumes of 5.1 million, 6.3 million, 7.8 million, and 6.5 million - an average daily volume (ADV) of 6.4 million (notional value of $6.4 trillion). By comparison, Eurodollar ADV through the first seven months of 2011 was approximately 3.3 million. Since August 1, Eurodollar open interest (OI) has grown by an average of 133,238 contracts per day, and currently stands at nearly 33 million contracts (notional value of $33 trillion). It's clear that during times of duress, market participants choose CME Group Interest Rate products, the proven industry benchmark for managing short-term interest rate exposure.
The Eurodollar futures contract is the most widely traded and versatile interest rate futures product in the world. It provides a valuable, cost-effective tool for hedging interest rate fluctuations on Eurodollars – U.S. dollars deposited in commercial banks outside the United States. Eurodollar deposits play a major role in the international capital market, and have long served as a benchmark interest rate for corporate funding.
Eurodollar futures provide a way to:
Hedge short term interest rate risk
Execute a variety of trading strategies, such as Butterflies, Packs and Bundles
Express a view on the direction of interest rates
Things to know:
Eurodollar futures reflect the London Interbank Offered Rate (LIBOR) for a 3-month, $1 million offshore deposit maturing at some point in the future
More than 85% of Eurodollar futures now trade electronically on the CME Globex platform
Available virtually around the clock, around the world
Complete price transparency and anonymity
Market prices universally available in real time
If anyone wants to understand the current real financial cliff, one should understand Eurodollar contracts, and the traitors making billions off these gambling instruments