What is one of the primary benefits of Eurodollar floating rate CDs (FRCDs)?

Eurodollar floating rate certificates of deposit (FRCDs) are an attractive investment option primarily because they offer protection against interest rate risk. These financial instruments have interest rates that are tied to a benchmark, typically the London Interbank Offered Rate (LIBOR) or similar rates, which adjust periodically.

The floating nature of the interest rate means that as market interest rates rise, the rate on the FRCD increases correspondingly. This ability to adjust to changing interest rates shields investors from the potential loss of value that can occur with fixed-rate investments when interest rates rise. In contrast, fixed-rate instruments lose attractiveness as new issues may offer higher yields, making existing fixed-rate securities less favorable.

This feature makes Eurodollar FRCDs particularly appealing in an environment where interest rates are volatile or expected to rise, as investors can benefit from higher yields without the concern of locking into lower fixed rates.