Question
In: Finance
Ford has a $20 million Eurodollar deposit maturing in two months that it plans to roll...
Ford has a $20 million Eurodollar deposit maturing in two months that it plans to roll over for a further six months. The company's treasurer feels that interest rates will be lower in two months’ time when rolling over the deposit. Suppose the current LIBOR 6 month rate is 7.875%.
a. Explain how Ford can use an forward rate agreement (FRA) at 7.65% from Banque Paribas to lock in a guaranteed six-month deposit rate when it rolls over its deposit in two months.
b. After two months, LIBOR 6 month rate has fallen to 7.5%. How much will Ford receive/pay on its FRA? What will be Ford's hedged deposit rate for the next six-month period?
c. In two months, the LIBOR 6 month rate has risen to 8%. How much will Ford receive/pay on its FRA? What will be Ford's hedged deposit rate for the next six months?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
1. Ford has a $20 million Eurodollar deposit maturing in two months that it plans to...
1. Ford has a $20 million Eurodollar deposit maturing in two
months that it plans to roll over for a further six months. The
company's treasurer feels that interest rates will be lower in two
months’ time when rolling over the deposit. Suppose the current
LIBOR 6 month rate is 7.875%.
a. Explain how Ford can use an forward rate agreement (FRA) at
7.65% from Banque Paribas to lock in a guaranteed six-month deposit
rate when it rolls over its...
ABC company has a $10 million loan maturing in 3 months that it plans to roll...
ABC company has a $10 million loan maturing in 3 months that it
plans to roll over for a further six months. The company treasurer
feels that interest rates will be higher in three months when
rolling over the loan. Suppose the current 6-month LIBOR rate is
1.9%.
a) Explain how ABC company can use an FRA at 2% from Banque
Paribas to lock in a guaranteed six-month rate when it rolls over
its loan in three months (e.g. buy/sell...
ABC company has a $10 million loan maturing in 3 months that it plans to roll...
ABC company has a $10 million loan maturing in 3 months that it
plans to roll over for a further six months. The company treasurer
feels that interest rates will be higher in three months when
rolling over the loan. Suppose the current 6-month LIBOR rate is
1.9%.
a) Explain how ABC company can use an FRA at 2% from Banque
Paribas to lock in a guaranteed six-month rate when it rolls over
its loan in three months (e.g. buy/sell...
PIB wants to offer a $40 million, 6-months Eurodollar deposit to one of its major clients...
PIB wants to offer a $40 million, 6-months Eurodollar deposit to
one of its major clients at 6-months LIBOR less 2.5%. 6-month LIBOR
is 5.3%. The bank intends to use the proceeds of this deposit to
buy a 5.0% 3-months grade AAA commercial paper and to rollover the
investment for another three months at the end of the first three
months cycle. To protect itself from interest rate exposure, the
bank also buys a “3 against 6” $40 million, FRA...
You take a 1 million 3-month Eurodollar deposit to finance a 1 million 6-month Eurodollar loan....
You take a 1 million 3-month Eurodollar deposit to finance a 1
million 6-month Eurodollar loan. You are worried about interest
rate risk and you would like to use a FRA contract to hedge your
risk exposure. The appropriate FRA contract you should consider is:
Select one: a. Sell a 3 against 6 FRA on a notional amount of $1
million. b. Buy a 3 against 6 FRA on a notional amount of $1
million c. Buy a 3 against...
You take a 1 million 9-month Eurodollar deposit to finance a 1 million 6-month Eurodollar loan....
You take a 1 million 9-month Eurodollar deposit to finance a 1
million 6-month Eurodollar loan. You are worried about interest
rate risk and you would like to use a FRA contract to hedge your
risk exposure. The appropriate FRA contract you should consider is:
Select one: a. Sell a 6 against 9 FRA on a notional amount of $1
million b. Buy a 3 against 6 FRA on a notional amount of $1 million
c. Sell a 3 against...
A bank purchases a six-month $4 million Eurodollar deposit at an interest rate of 7.6 percent...
A bank purchases a six-month $4 million Eurodollar deposit at an
interest rate of 7.6 percent per year. It invests the funds in a
six-month Swedish krona bond paying 8.6 percent per year. The
current spot rate of U.S. dollars for Swedish krona is
$0.1800/SKr.
a. The six-month forward rate on the Swedish krona
is being quoted at $0.1810/SKr. What is the net spread earned for
six months on this investment if the bank covers its foreign
exchange exposure using...
An investor wishes to be sure she has $20 million in 15 months’ time. At present,...
An investor wishes to be sure she has $20 million in 15 months’
time. At present, 1-year and 2-year zero-coupon bonds are priced to
yield 9.7%. The investor sets up a bond portfolio using the
duration-matching principle. Three months after setting up the
portfolio, the yields on both bonds increase to 10.2% and then
remain at that level for a further 12 months. Assume that all
months are of equal length, that all bonds have a par value of
$100,...
An investor wishes to be sure she has $20 million in 15 months’ time. At present,...
An investor wishes to be sure she has $20 million in 15 months’
time. At present, 1-year and 2-year zero-coupon bonds are priced to
yield 9.7%. The investor sets up a bond portfolio using the
duration-matching principle. Three months after setting up the
portfolio, the yields on both bonds increase to 10.2% and then
remain at that level for a further 12 months. Assume that all
months are of equal length, that all bonds have a par value of
$100,...
the cpompany has customers make a 20% deposit on items made. This deposit is credited to...
the cpompany has customers make a 20% deposit on items made.
This deposit is credited to the Unearned Sales Account when
received. Customers pay the remaining balance (80% of the selling
price) once the product is done and delivered. On june 1, 2016, the
Unearned Sales account had a credit balance of $180,000. During
June and July 2016, total customer deposits made for products to be
delivered in the future amounted to $400,000 and $480,000.
Questions: (please explain answers, not...
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