Question
(a) Your money market broker quotes you the following spot rates: 3-month KLIBOR = 8% 6-month KLIBOR = 9.5% What should the correct price of
(a) Your money market broker quotes you the following spot rates:
3-month KLIBOR = 8%
6-month KLIBOR = 9.5%
What should the correct price of a 3-month KLIBOR futures contract be?
(b) A bank has agreed to provide its client with a fixed rate 3-month RM20 million loan 90 days from today. The loan is priced at 12% per annum. Assume that the cost of funds of the bank is the KLIBOR rate. The following quotes have been given:
3-month KLIBOR = 9%
3-month KLIBOR futures = 90.0 (matures in 90 days)
i. How would the bank protect itself from a rise in interest rates? State the strategy.
ii. Assuming interest rates rise by 2% over the next 3 months, show using computations, that the bank has locked-in the interest spread.
Step by Step Solution
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Step: 1
a The price of the 3month KLIBOR futures contract should be 890 This can be calculated using the fol...
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Step: 2
Step: 3
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Environment
Authors: Peter H. Raven, David M. Hassenzahl, Mary Catherine Hager, Nancy Y. Gift, Linda R. Berg
9th edition
1118875826, 1118875827, 1119034132, 9781119034131, 978-1118875827
