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Sir can u please explain me in this question we r borrowing money so basically we r hedging against rise in interest rate.Then why in bpp solution they have given when it increase to 100 basis points they have given 92 as (open -close future price as 93.88-92.96) and for dec in 100 basis point its (93.88-94.96) as (108) basis.
My question is should it be other way round i mean -92 and +108 because at close if the future price has gone down it means interest rate gone up which is loss for us. I am really confused,i dont know how to make out gain or loss should i go as per interest rate or the future price. I have gone through lecture ,its all clear while listening to lecture but when it comes to question it becomes confusing. Please help me. ThanksSir in same question am i right that when company invest money its always call and when borrowing it’s always put ,it means if question are on interest rate we dont go according to rule of need to look buying or selling contract currency.
If you are using futures, then the futures will give a loss or a gain which will ‘cancel out’ the saving or loss on the borrowing itself.
So if interest rates increase, we lose money on the actual borrowing, but we will make a gain from the futures (to set against the loss on the borrowing).In your second question, you are confusing interest rate futures with currency futures. There is no relevance to the contract currency if we are looking at interest rates.
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