Your financial firm needs to borrow $500 million by selling time deposits with 180-day maturities. If interest rates on comparable deposits are currently at 4 percent, what is the cost of issuing these deposits? Suppose interest rates rise to 5 percent. What then will be the cost of these deposits? What position and types of futures contract could be used to deal with this cost increase?
Question 8.P.4: Your financial firm needs to borrow $500 million by selling ...
At a rate of 4 percent the interest cost is:
\$ 500 \text { million } \times 0.04 \times \frac{180}{360}=\$ 10,000,000
At a rate of 5 percent the interest cost would be:
\$ 500 \text { million } \times 0.05 \times \frac{180}{360}=\$ 12,500,000
A short hedge could be used based upon Eurodollar time deposits.
Related Answered Questions
Total Interest Owed = Amount Borrowed * Interest R...
Total Interest Owed = Amount Borrowed * Interest R...
a. How much did you pay for the put in dollars if ...
You are trying to protect the bank against rising ...
Profit per contract: $109,000 - $99,000 - $700 = $...
This SWAP agreement would have the form:
...
a. Market interest rates are expected to increase ...
Firm sells Eurodollar futures at (1,000,000*[1-((2...
a. What is the dollar gain/loss to Cavalier from t...
Change in value = -10.48 x $113,179.69 x.0075/ (1+...