A B C F K CASE 5 FORWARD RATE OF INTEREST (20 marks) A company wishes to deposit 24000 in 91 days time for a period of 91 days. The current -denominated money market rates are: \begin{tabular}{|l|l|l|l|} \hline 91 days interest rate spread & 0.82% & & 0.92% \\ \hline 182 days interest rate spread & 1.12% & & 1.22% \\ \hline \end{tabular} Assume that one year consists of 365 days. a) Explain the interest rate risk facing the company. (2 marks) b) Explain the terms of a money market hedge the company can take and calculate the forward rate (10 marks) c) Comment on how the company can benefit from the money market hedge in part b (8 marks) A B C F K CASE 5 FORWARD RATE OF INTEREST (20 marks) A company wishes to deposit 24000 in 91 days time for a period of 91 days. The current -denominated money market rates are: \begin{tabular}{|l|l|l|l|} \hline 91 days interest rate spread & 0.82% & & 0.92% \\ \hline 182 days interest rate spread & 1.12% & & 1.22% \\ \hline \end{tabular} Assume that one year consists of 365 days. a) Explain the interest rate risk facing the company. (2 marks) b) Explain the terms of a money market hedge the company can take and calculate the forward rate (10 marks) c) Comment on how the company can benefit from the money market hedge in part b (8 marks)