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Hello Sir, after watching the int rate risk management lecture
I have a question about the int rate future and optionsAs what you said at the start of the lecture, the int risk management is for cover/protecting the period before the transaction (borrow loan or deposit money)take place until a future date, which we either selling or buying the future contract at today and close out the position when the transaction takes place
Why the future contract size bought need to be cover the period of the loan which is after the transaction date(date of beginning)?
Although I know its only cover for 3 mths ,but my question is : is it not only protect until the beginning of the loan start but also for the whole borrowing period ?
Thank you.
Interest rates are quoted as annual rates, but the interest sonly calculated for the period of the loan.
If we are taking a loan for 3 months and the interest rate goes up by 1% p.a. between now and the start of the loan, then the extra interest on the loan will be 3/12 x 1% of the amount of the loan!!
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