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Background: GlobalPetrol Corp, which faces significant financial challenges due to geopolitical tensions stemming from Russia's invasion of Ukraine, has resulted in considerable volatility in the
Background: GlobalPetrol Corp, which faces significant financial challenges due to geopolitical tensions stemming from Russia's invasion of Ukraine, has resulted in considerable volatility in the global oil markets, affecting oil producers worldwide who are exposed to fluctuating prices. The corporation is now managing a new $ million investment portfolio globally, spanning from July st to October st a total of days. The investment aims to optimize returns amid fluctuating interest rates. The department has fixed annual investment rates of for months, for months, and for months. Historical data suggests volatility in floating rates. For FRA pricing, the actual convention is used, and as of July st the Libor rate is forecasted to be per annum. The primary objective for GlobalPetrol Corp is to navigate the fluctuations in interest rates while ensuring the highest possible net interest revenue over the investment period. This requires a precise calculation of potential returns from fixedrate investments and comparing them against returns hedged with interest rate derivatives such as FRA contracts, Eurodollar Futures, and Bank Accepted Bills Futures.
Conclusion: This comprehensive approach will help GlobalPetrol Corp effectively manage its financial exposure during an uncertain economic period, aligning investment decisions with overall corporate finance strategy amidst global market fluctuations. You are tasked with calculating and determining the most profitable net interest revenue for the investment by using the following interest rate hedge instruments:
a FRA marks
b Eurodollar Futures contracts marks
c Bank Accepted Bills Futures contracts.
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