John is investment officer for a local 500m of investments. Johns mandate limits him to only investing in interest bearing securities and deposits, though he is allow to use interest rate derivatives. With 3-month Sterling Libor at 0.50% John is trying to generate enough income from his investments to fund the cash requirements of the local. ideally he likes to earn at least 2.5%. John seeks the advice of an bank as to how he can enhance the yield on his cash using interest rate derivatives and structured products.

a. Considering you work for the bank and under the above constraints, propose 3 significantly different solutions to Johns problem. In each case outline the details and workings as well as the risks involved. b. Which of these 3 solutions would you recommend and why? Take into account different elements, potential return, risk, etc.