Question

Assume today is the 4th May and you intend to issue a single 110 day bank...

Assume today is the 4th May and you intend to issue a single 110 day bank accepted bill on the 12th June. You decide to take a position in a bank bill futures contract to hedge the interest rate risk that you face between now and the 12th June. The table below provides the spot and futures prices of the underlying bank bills at both the 4th May and the 12th June.

4th May

12th June

90 day BAB spot

$     950,000

$     955,000

110 day BAB spot

$     880,000

$     884,000

90 day BAB futures

$     951,000

$     958,000

Calculate the actual amount raised on the 12th June from the bank bill issue plus any profit or loss in closing out the futures contract.

A.

$886,000

B.

$880,000

C.

$884,000

D.

$883,000

E.

$877,000

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume today is 4 May 2017 and you intend to invest in 90-day Bank Accepted Bills...
Assume today is 4 May 2017 and you intend to invest in 90-day Bank Accepted Bills (BAB) on 11 June 2017. You decide to take a position in the BAB futures contract to hedge the interest rate risk that you are likely to face between now and 11 June 2017. What is the nature of the interest rate risk you are likely to face, and how will you use the BAB futures contract to hedge that risk? A. A fall...
Today is April 1st. A bank needs to borrow $100 million on May 15th by selling...
Today is April 1st. A bank needs to borrow $100 million on May 15th by selling 90-day Eurodollar deposits. Bank’s Treasury desk is looking into derivatives contracts for hedging the bank’s risk and is interested in the June Eurodollar futures contract with a current price of 93.25 and a contract size of $1 million. Explain the risk faced by the bank in the spot market and determine the futures position that the Treasury desk should take in order to hedge...
In March, a bank short-term investment manager has $1 million in 90 day Tbills on its...
In March, a bank short-term investment manager has $1 million in 90 day Tbills on its balance sheet that it plans to sell in June for liquidity purposes, and is worried about interest rates rising (i.e. prices falling) in the next few months, which would cause the value of the T-bills to fall. The current (spot) discount yield is 1.10% (i.e. a Discount % price of 98.90%) for a 90-day T-bill. a. What is the price for the $ 1...
1. The bank you are working for needs to borrow $100 million on May 15 th...
1. The bank you are working for needs to borrow $100 million on May 15 th by selling 90-day Eurodollar deposits. Your bank’s Treasury desk is looking into derivatives contracts for hedging the bank’s risk and is interested in the June Eurodollar futures contract with a current price of 93.25 and a contract size of $1 million. a. Explain the risk faced by your bank in the spot market and determine the futures position that the Treasury desk should take...
What tools could AA leaders have used to increase their awareness of internal and external issues?...
What tools could AA leaders have used to increase their awareness of internal and external issues? ???ALASKA AIRLINES: NAVIGATING CHANGE In the autumn of 2007, Alaska Airlines executives adjourned at the end of a long and stressful day in the midst of a multi-day strategic planning session. Most headed outside to relax, unwind and enjoy a bonfire on the shore of Semiahmoo Spit, outside the meeting venue in Blaine, a seaport town in northwest Washington state. Meanwhile, several members of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT