A company needs to borrow money in six months’ time for six months and interest rates are expected to rise. The current data is given in Figure 10.11.

The loan is 5,000,000 and the standard contract size 1,000,000 meaning that five contracts are required. Calculate the overall position if the March spot price is 4.95 per cent and the future rises to 9520 (4.80 per cent). Was there an overall profit or loss?

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Figure 10.11 A B Exercise data 6 (1) Prices Price Interest Rate Spot 9520 4.80 8 9 10 11 1234 December 9508 4.92 March 9505 4.95 June 9496 5.04 September 9499 5.01 12 13 Current Date Sept 14 Loan Required March 15 Payment per Annum 2 16 Loan Amount 17 Contract Size 5,000,000.00 1,000,000.00 18 19 Number of Contracts 5.00