On November 03, 2022, Global Ltd. wants to borrow 2 million in two months' time for...

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On November 03, 2022, Global Ltd. wants to borrow £2 million in two months' time for a period of three months. The current interest rate is 5%, and the company worries about the potential interest rate rise. We have the following data from the futures market: January futures price = 94.17 and April futures price = 93.45. a) Design a strategy using short-term interest rate futures to hedge against the company's exposure to the risk of changing the interest rate. Suppose the size of interest rate futures is £500,000. b) Suppose the interest rate rises to 6.5% in two months' time. What is the gain/loss of the company regarding interest rate income in the cash market? Show your steps. c) What is the gain/loss from the futures market? Show your steps. d) If Global Ltd decides to close out this short position before the delivery date, what will happen to the counterparty position? What are the choices for the counterparty? On November 03, 2022, Global Ltd. wants to borrow £2 million in two months' time for a period of three months. The current interest rate is 5%, and the company worries about the potential interest rate rise. We have the following data from the futures market: January futures price = 94.17 and April futures price = 93.45. a) Design a strategy using short-term interest rate futures to hedge against the company's exposure to the risk of changing the interest rate. Suppose the size of interest rate futures is £500,000. b) Suppose the interest rate rises to 6.5% in two months' time. What is the gain/loss of the company regarding interest rate income in the cash market? Show your steps. c) What is the gain/loss from the futures market? Show your steps. d) If Global Ltd decides to close out this short position before the delivery date, what will happen to the counterparty position? What are the choices for the counterparty?

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A Design a strategy using shortterm interest rate futures to hedge against the companys exposure to the risk of changing the interest rate Suppose the ... View the full answer