Eurostrip

AAA

DEFINITION of 'Eurostrip'

A series of consecutive three-month futures contracts based on U.S. dollar-denominated deposits in foreign banks. Eurostrips, also called eurofutures strips or eurodollar futures strips, are a type of interest-rate derivative and, like swaps, are used to hedge against changes in interest rates. A one-year eurostrip would consist of four consecutive contracts, each lasting three months, that together have a duration of one year and thus provide an interest-rate hedge for one year.

INVESTOPEDIA EXPLAINS 'Eurostrip'

The end result of hedging using eurostrips is the same as that of using swaps, but the two investments are traded differently and have different cash flows. One choice may be more desirable than another at a given time to meet a specific investment objective, or both may be even used together. Eurostrips are popular because of their flexibility to be structured in many different ways to meet a variety of hedging needs.

RELATED TERMS
  1. Currency Futures

    A transferable futures contract that specifies the price at which ...
  2. Perfect Hedge

    A position undertaken by an investor that would eliminate the ...
  3. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  4. Eurodollar

    U.S.-dollar denominated deposits at foreign banks or foreign ...
  5. Eurodollar Bond

    A U.S.-dollar denominated bond issued by an overseas company ...
  6. Futures

    A financial contract obligating the buyer to purchase an asset ...
RELATED FAQS
  1. What is the difference between hedging and speculation?

    Hedging involves taking an offsetting position in a derivative in order to balance any gains and losses to the underlying ... Read Full Answer >>
  2. How are futures used to hedge a position?

    Futures contracts are one of the most common derivatives used to hedge risk. A futures contract is as an arrangement between ... Read Full Answer >>
  3. How are swap agreements financed?

    Since swap agreements involve the exchange of future cash flows and are initially set at zero, there is no real financing ... Read Full Answer >>
  4. What are the risks involved with swaps?

    The main risks associated with interest rate swaps, which are the most common type of swap, are interest rate risk and counterparty ... Read Full Answer >>
  5. How can an investor make money from a decline in the electronics sector?

    Speculation methods, such as short selling, futures contracts and put options, offer investors a way to make money from a ... Read Full Answer >>
  6. How can an investor profit from a decline in the aerospace sector?

    Several forms of speculation enable investors to profit from a decline in the aerospace sector. Short selling aerospace stock ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Offset Risk With Options, Futures And Hedge Funds

    Though all portfolios contain some risk, there are ways to lower it. Find out how.
  2. Options & Futures

    Practical And Affordable Hedging Strategies

    Learn how to find and use the most cost-effective ways to transfer risk.
  3. Options & Futures

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  4. Markets

    Hedging With Puts And Calls

    This trading strategy can reduce your risk - but only if you use it effectively.
  5. Investing Basics

    Understanding Notional Value

    This term is commonly used in the options, futures and currency markets because a very small amount of invested money can control a large position.
  6. Options & Futures

    How & Why Interest Rates Affect Futures

    There are at least four factors that affect change in futures prices, including risk free-interest rates, particularly in a no-arbitrage environment.
  7. Options & Futures

    An Introduction To Trading Silver Futures

    Silver Futures are becoming popular trading instruments. Here is a primer on how to trade them.
  8. Mutual Funds & ETFs

    The Top 3 Silver ETFs

    Like any tradable asset, silver and silver ETF prices are governed by the fundamental market economic forces of supply and demand.
  9. Active Trading Fundamentals

    Invest In Gold Through ETFs

    The mystique of the yellow metal captivates market players seeking hedges against inflationary pressure, safe haven in turbulent times and opportunities for speculative trading opportunities. ...
  10. Forex Strategies

    An Introduction To Trading Forex Futures

    We explain what forex futures are, where they are traded, and the tools you need to successfully trade these derivatives.

You May Also Like

Hot Definitions
  1. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  2. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
  3. Trailing Twelve Months - TTM

    The timeframe of the past 12 months used for reporting financial figures. A company's trailing 12 months is a representation ...
  4. Subordinated Debt

    A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known ...
  5. International Financial Reporting Standards - IFRS

    A set of international accounting standards stating how particular types of transactions and other events should be reported ...
  6. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
Trading Center