Question 1 (15 marks) -Risk Management in banking

Read the following case study and answer the questions that follow:

On 1 May 2021, a company decides to borrow R100 million in three months time for a three-month period, 1 August to 1 November. The company decides to purchase a 90-day caplet from a bank as hedge against a possible interest rate hike by the South African Reserve Bank.

The transaction data is as follows:

Notional amount -R100 000 000 Current (1 May) three-month JIBAR- 6.20%

Three-month cap strike (on reset date) -6.50%

Premium: 0.085%

Three-month JIBAR on exercise or settlement- 7.10%

Caplet days- 90 days Number of days in a year- 365 days

1. 1.1 State the following dates from the above scenario:

   1. 1.1.1 Transaction date (1)

   2. 1.1.2 Reset date (1)

   3. 1.1.3 Settlement date. (1)