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A firm will expand its production facilities during the current year. In three months time it will need 5 0 0 , 0 0 0
A firm will expand its production facilities during the current year. In three months time it will need EURO in additional financing for a period of months, which will be borrowed from a bank at the months Eurobond rate. The firm fears a change in interest rates during the next three months, as so it wants to hedge this risk by using a forward rate agreement FRA
Considering the following spot Eurobond rates:
Maturity Months Months Months Months
Rate
A Describe the interest rate risk exposure of this firm
B Describe how it can hedge this risk using FRA
C Determine the corresponding FRA rate.
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