Abc company required $45m loan. the event will take place in seven month time. but facility will be necessary in five month time. Abc company expects the loan to be repaid at the time of the event.
Assume today is 1st December and following futures price are available
december 96.04
march 95.77
june 95.55
explain how the loan duration will be selected @ which future price.
Thank
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interest rate futures
10y ago#1Because the loan is needed in 5 months time, it is needed in May. Therefore they will sell June futures at 95.55.
The free lectures on interest rate risk management cover everything you need on this for the exam.
The loan is needed in 7 months time. It June 1. June futures will still be used
10y ago#3I have not obviously seen the full question.
However, what was typed above says that the facility (presumably the loan) is needed in 5 months time, and that it is repaid at the time of the event (maybe 'the event' is receiving some money from elsewhere). If it is repaid in 7 months time, then it obviously must be borrowed before then!!!
(and the borrowing is obviously not needed as of today, otherwise there would be no need to use futures at all!)
OK Thanks
10y ago#5You are welcome :-)
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