It is now 31 December 2017 and the corporate treasurer of Omnitown plc is concerned about the
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Question:
It is now 31 December 2017 and the corporate treasurer of Omnitown plc is concerned about the volatility of interest rates.
His company needs in three months' time to borrow £5 million for a six month period. Current interest rates are 14% per year for the type of loan Omnitown would use, and the treasurer does not wish to pay more than this.
He is considering Using:
(i) A forward rate agreement (FRA); or
(ii) Interest rate futures; or
(iii) An interest rate guarantee (short-term cap).
You are required to explain briefly how each of these three alternatives might be useful to Omnitown plc for hedging Interest rate risk?
Related Book For
Corporate Finance and Investment decisions and strategies
ISBN: 978-1292064062
8th edition
Authors: Richard Pike, Bill Neale, Philip Linsley
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