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 9,520 (4.80 per cent). Was there an overall profit or was there a loss?

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Figure 10.11 5 6 7 B (1) Prices Exercise data Price Interest Rate Spot 9,520.00 4.80 December 9,508.00 4.92 March 9,505.00 4.95 June 9,496.00 5.04 September 9,499.00 5.01 Sept March 2.00 5,000,000.00 1,000,000.00 5.00 8 9 10 11 1234 12 13 14 15 Current Date Loan Required Payment per Annum 16 Loan Amount 17 Contract Size 18 19 Number of Contracts