The treasurer of a small bank has borrowed funds for 3 months at an interest rate of 5.50% and has lent funds for 9 months at 6.50%. The total amount is USD25 million. To cover his exposure created by the mismatch of maturities, the dealer needs to borrow another USD25 million for 6 months, in 3 months' time, and hedge the position now with an FRA. What is the treasurer's break-even forward rate of interest, assuming no other costs? Multiple Choice O O O 5.50% 6.00% 7.30% 6.91% 6.50%
The treasurer of a small bank has borrowed funds for 3 months at an interest rate of 5.50% and has lent funds for 9 months at 6.50%. The total amount is USD25 million. To cover his exposure created by the mismatch of maturities, the dealer needs to borrow another USD25 million for 6 months, in 3 months' time, and hedge the position now with an FRA. What is the treasurer's break-even forward rate of interest, assuming no other costs? Multiple Choice O O O 5.50% 6.00% 7.30% 6.91% 6.50%
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 14P
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The treasurer of a small bank has borrowed funds for 3 months at an interest rate of 5.50% and has lent funds for 9 months at 6.50%. The total amount is
USD25 million. To cover his exposure created by the mismatch of maturities, the dealer needs to borrow another USD25 million for 6 months, in 3
months' time, and hedge the position now with an FRA. What is the treasurer's break-even forward rate of interest, assuming no other costs?
Multiple Choice
5.50%
6.00%
7,30%
6.91%
6.50%
D](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb500b5ac-d3d8-4245-a0eb-ac75a5c9512a%2Fe49c2080-cb56-4c54-94d4-9222504dc148%2Frm3m25j_processed.jpeg&w=3840&q=75)
Transcribed Image Text:}
The treasurer of a small bank has borrowed funds for 3 months at an interest rate of 5.50% and has lent funds for 9 months at 6.50%. The total amount is
USD25 million. To cover his exposure created by the mismatch of maturities, the dealer needs to borrow another USD25 million for 6 months, in 3
months' time, and hedge the position now with an FRA. What is the treasurer's break-even forward rate of interest, assuming no other costs?
Multiple Choice
5.50%
6.00%
7,30%
6.91%
6.50%
D
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