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Interest rates hedging- futures

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Interest rates hedging- futures

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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    Posts
  • October 16, 2015 at 9:27 am #276622
    xqho
    Member
    • Topics: 9
    • Replies: 7
    • ☆

    Hi sir

    I would like to ask, when calculating the outcome of an interest rate futures, do we take LIBOR+credit spread to calculate the actual borrowing costs, then only use this costs to minus profits gained from futures (or to add the losses incurred from futures) in getting the total costs to calculate the effective interest rate?

    What if calculating the effective interest rate using the total borrowing costs that include only LIBOR in the calculation of actual borrowing costs? Acceptable?

    October 16, 2015 at 2:59 pm #276666
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51551
    • ☆☆☆☆☆

    The profit or loss on futures is calculated by comparing the futures price to Libor (not Libor + credit spread).

    It will help you to watch the examples that are worked through in the free lectures on interest rate futures.

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