Demonstratehow FRAs, BAB futures and interest rate swaps establishes the company's cost of funds for the initial issue of the bills in a bills facility.

For the purposes of your demonstration, assume:

the two-year bill facility uses 90-day BABs with a face value of $150 million;

the facility is being organised in November for commencement in mid-December 2020;

when the bill facility was being organised the December 2020 BAB futures price was 96.45 and the March 2021 BAB futures price was 96.65;

the two-year swap rate in December is 3.45%pa

the 90-day spot rate was 3.35%pa in mid-December (the settlement date for December 2020 futures)

the December FRA rate matches the relevant BAB futures rate