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AlphaBeta Ltd needs to borrow $10 million for a 3-month period in 3 months' time. In order to hedge the exposure to interest rates rising
AlphaBeta Ltd needs to borrow $10 million for a 3-month period in 3 months' time. In order to hedge the exposure to interest rates rising AlphaBeta buys a 3X6 FRA based on LIBOR with a 90/360-day count convention. All interest rates are compounded quarterly. It enters the FRA at a FRA rate of 3% per annum. AlphaBeta can borrow at LIBOR + 0.5%. In three months' time at settlement of the FRA LIBOR is 2.6%. 1. The cash-flow on the FRA is dollars. Do not include dollar sign ($) or commas in your answer. Write your answer as a whole number. 2. When Alphabeta borrows for the three month period the effective cost of borrowing is % per annum. Write your answer correct to one decimal place. AlphaBeta Ltd needs to borrow $10 million for a 3-month period in 3 months' time. In order to hedge the exposure to interest rates rising AlphaBeta buys a 3X6 FRA based on LIBOR with a 90/360-day count convention. All interest rates are compounded quarterly. It enters the FRA at a FRA rate of 3% per annum. AlphaBeta can borrow at LIBOR + 0.5%. In three months' time at settlement of the FRA LIBOR is 2.6%. 1. The cash-flow on the FRA is dollars. Do not include dollar sign ($) or commas in your answer. Write your answer as a whole number. 2. When Alphabeta borrows for the three month period the effective cost of borrowing is % per annum. Write your answer correct to one decimal place
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