It is 1 st April today, and you as an investment analyst in the GFC Bank been
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Question:
It is 1st April today, and you as an investment analyst in the GFC Bank been approached by a corporate client who wants to invest $2 billion from 1st July to 1st October. The prevailing 3-month fixed investment rate today is 6.00% p.a. while the floating Libor rate on 1st July is uncertain at the moment. There are 92 days between 1st July and 1st October, and the actual / 360 convention is used for FRA pricing. If the floating Libor rate turns out to be 6.25% p.a. on 1st July.
You are required to evaluate and identify the highest net interest revenue for this 3-month investment based on the 3 following interest rate hedge instruments:
- 1) 3 x 6 FRA contracts
- 2) Eurodollar Futures contracts
- 3) Bank Accepted Bills Futures contracts
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