Question
Ford has a $20 million Eurodollar deposit maturing in two months that it plans to roll over fora further six months. The company's treasurer feels
Ford has a $20 million Eurodollar deposit maturing in two months that it plans to roll over fora further six months. The company's treasurer feels that interest rates will be lower in twomonths time when rolling over the deposit. Suppose the current LIBOR is 7.875%.4.a.Explain how Ford can use an FRA at 7.65% from Banque Paribas to lock in a guaranteedsix-month deposit rate when it rolls over its deposit in two months
4.a.Explain how Ford can use an FRA at 7.65% from Banque Paribas to lock in a guaranteedsix-month deposit rate when it rolls over its deposit in two months
4.b.In two months, LIBOR has risen to 8%. How much will Ford receive/pay on its FRA? Whatwill be Fords hedged deposit rate for the next six months?
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