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Please show me how to get futures contract profits=1181.35 on both side.Thank you! TABLE 19.2 HEDGING THE COST OF FUNDS (BORROWING HEDGE) Cash or physical
Please show me how to get futures contract profits=1181.35 on both side.Thank you!
TABLE 19.2 HEDGING THE COST OF FUNDS (BORROWING HEDGE) Cash or physical market Today The company expects to borrow approximately $1 million in three months. The current rate of interest is 8% pa. but is forecast to rise. In three months' time Issue a bank bill with a face value of $1 million at a yield of 9% pa. (Value of bill = $978 290.00) Futures contract profit of $1181.35 offsets the additional cost of borrowing at 9% in the cash market Futures market Today Sell one ($1 million) 90-day bank bill contract at 91.50; yield of 8.50% pa. (Value of contract = $979 471.35) In three months' time y one 90-day bank bill contract at 91.00 (close out futures market position) (Value of contract = $978 290.00) Profit on closing out futures contract $1181.35
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