It is early January 2022. CBG Resources limited intends to borrow £ 2 million in May for three months and is concerned about the risk of rising interest rates. It can borrow at LIBOR plus 1%. The current three-month LIBOR rate (spot rate) is 4.625%. June futures for short sterling have a current market price of 95.35. REQUIRED: Show how CBG Resources can set up for the exposure to the risk of increase in the three month LIBOR rate. Calculate the gain/loss from the interest rate future contract if in May the three month LIBOR is 5.5% and the June futures price is 94.25.
It is early January 2022. CBG Resources limited intends to borrow £ 2 million in May for three months and is concerned about the risk of rising interest rates. It can borrow at LIBOR plus 1%. The current three-month LIBOR rate (spot rate) is 4.625%. June futures for short sterling have a current market price of 95.35. REQUIRED: Show how CBG Resources can set up for the exposure to the risk of increase in the three month LIBOR rate. Calculate the gain/loss from the interest rate future contract if in May the three month LIBOR is 5.5% and the June futures price is 94.25.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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It is early January 2022. CBG Resources limited intends to borrow £ 2 million in May for three months and is concerned about the risk of rising interest rates. It can borrow at LIBOR plus 1%. The current three-month LIBOR rate (spot rate) is 4.625%. June futures for short sterling have a current market price of 95.35.
REQUIRED:
-
Show how CBG Resources can set up for the exposure to the risk of increase in the three month LIBOR rate.
-
Calculate the gain/loss from the interest rate future contract if in May the three month LIBOR is 5.5% and the June futures price is 94.25.
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