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Assume it's 1 December 2021. Mk Ltd is planning to take out a six-month fixed-rate loan of $5 in three months. It is concerned about
- Assume it's 1 December 2021. Mk Ltd is planning to take out a six-month fixed-rate loan of $5 in three months. It is concerned about the Base rate rising from its current level of 5.25% per annum. It is considering using the futures market to hedge interest rate risk. The futures Exchange is quoting the following prices for a standard $500 Three-Month. Interest Rate Futures: December 94.75= 5.25%, March 94.65= 5.35%, June 94.55 = 5.45%. The futures contract expires at the end of the relevant month.
Required:
Illustrate the outcome of a futures hedge, assuming the loan is taken at Base rate + 1% fixed at the start of the loan and that base rate is 5.75% on 1 March
- Financial risk can be identified with the use of varied tools and techniques. List and describe at least three techniques used to identify financial risk.
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