Question
Ford has a $15 million Eurodollar loan maturing in 3 months that it plans to roll over for a further six months. The company treasurer
Ford has a $15 million Eurodollar loan maturing in 3 months that it plans to roll over for a further six months. The company treasurer feels that interest rates will be higher in three months when rolling over the loan. Suppose the current 6-month LIBOR rate is 6.525%. a) Explain how Ford can use an FRA at 6.75% from Banque Paribas to lock in a guaranteed six-month rate when it rolls over its loan in three months (e.g. buy/sell an FRA, underlying principle, what rate will apply, and when). b) In two months, 6-month LIBOR turned out to be 7%. How much will Ford receive/pay on its FRA?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started