What are Eurodollars?
Eurodollars are time deposits denominated in United States dollars at banks outside the United States and therefore does not belong under the jurisdiction of the Federal Reserve.
Uses of the Eurodollar
A single Eurodollar future can be compared to a forward rate agreement to borrow or lend US$1,000,000 for a three month period starting on the contract settlement date. Buying the contract is the equivalent of lending money and selling the contract short is the equivalent to borrowing money.
Risks of the Eurodollar
All futures contracts will feature the same risk through anticipated movement of the contract to rise or fall. If you anticipate a currency to increase in value and it ends up falling in value. The long position that you hold will also fall in value.