In June, the Carey Money Market Fund forecasted a September cash inflow of $15 million that it plans to invest for 92 days in T-bills. The fund is uncertain about future short-term interest rates and would like to lock in the rate on the September investment with T-bill futures contracts. Currently, September T-bill contracts are trading at 93 (IMM index).

If the Carey Money Market Fund expects interest rates to be higher in September but is worried that rates would decrease. Suppose there is a September T-bill futures call contract with an exercise price of 93 (IMM index), trading at 5, and expiring at the same time as the September T-bill futures contract. 

How may call options do Carey need to lock in a minimum rate on its investment? 

What is the cost?

Answer rating: 100% (QA)

To lock in a minimum rate on its investment Carey Money Market Fund can use Tbill futures call optio... View the full answer