On December 5 th 2011, Alison was advised by her bank that her application for a bill
Question:
On December 5th 2011, Alison was advised by her bank that her application for a bill acceptance facility that would allow her to issue 120-day bank bills with a total face value of $850,000 in June 2012, was successful. These will be sold to yield BBSW+0.5% p.a. Concerned that interest rates may rise before the bills are issued on June 5th, Alison assembled the following FRA quotations payable against the reference rate of BBSW.
FRA Lender Borrower
6/9 5.5% p.a. 6.5% p.a.
6/10 5.6% p.a. 6.6% p.a.
9/12 5.9% p.a. 6.9% p.a.
10/13 6.0% p.a. 7.0% p.a.
How Alison should use an FRA to hedge her exposure, and calculate the amount, direction, and date of the payment at settlement if, on the settlement date BBSW is 5.1% p.a.
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts