The monthly cash budget of HYK Communications plc shows that the company will need £18 million in two months' time for a period of four months. Financial markets have been volatile recently and the finance director fears that short-term interest rates could either rise by as much as 150 basis points, or fall by 50 basis points. LIBOR is currently 6.5 per cent and HYK can borrow at LIBOR + 0.75 per cent.
The finance director wants to pay no more than 7.50 per cent, including option premium costs, but excluding the effect of margin requirements and commissions. ICE Futures Europe £500,000 three-month futures prices: The value of one tick is £12.50
December.............................93.40
March.................................93.10
June....................................92.75
ICE Futures Europe £500,000 three-month options prices (premiums in annual per cent)