8. Suppose in six months you plan to borrow $10,000,000 for a three-month period at the rate of LIBOR + 100bp. Suppose the price of the relevant Eurodollar futures contract is 96.20 today and in six months LIBOR is 7%. How could you best hedge your interest rate risk and what will be your approximate cost of debt in annualized terms after accounting for your profit or loss on the futures position? a. Buy Eurodollar futures that mature in six months; 4.80% b. Buy Eurodollar futures that mature in six months; 8.00% C. Buy Eurodollar futures that mature in nine months; 4.80% d. Buy Eurodollar futures that mature in nine months; 8.00% Sell Eurodollar futures that mature in nine months; 4.80% f. Sell Eurodollar futures that mature in nine months; 8.00% g. Sell Eurodollar futures that mature in six months; 4.80% h. Sell Eurodollar futures that mature in six months; 8.00% e. a. 9. Suppose the quote for a five-year swap with annual payments is 8.50-8.60 percent. The quote means The swap bank will pay annual fixed-rate dollar payments of 8.50% against receiving dollar LIBOR b. The swap bank will receive annual fixed-rate dollar payments of 8.60% against paying dollar LIBOR Both a and b d. None of the above c. 8. Suppose in six months you plan to borrow $10,000,000 for a three-month period at the rate of LIBOR + 100bp. Suppose the price of the relevant Eurodollar futures contract is 96.20 today and in six months LIBOR is 7%. How could you best hedge your interest rate risk and what will be your approximate cost of debt in annualized terms after accounting for your profit or loss on the futures position? a. Buy Eurodollar futures that mature in six months; 4.80% b. Buy Eurodollar futures that mature in six months; 8.00% C. Buy Eurodollar futures that mature in nine months; 4.80% d. Buy Eurodollar futures that mature in nine months; 8.00% Sell Eurodollar futures that mature in nine months; 4.80% f. Sell Eurodollar futures that mature in nine months; 8.00% g. Sell Eurodollar futures that mature in six months; 4.80% h. Sell Eurodollar futures that mature in six months; 8.00% e. a. 9. Suppose the quote for a five-year swap with annual payments is 8.50-8.60 percent. The quote means The swap bank will pay annual fixed-rate dollar payments of 8.50% against receiving dollar LIBOR b. The swap bank will receive annual fixed-rate dollar payments of 8.60% against paying dollar LIBOR Both a and b d. None of the above c
