Suppose a manufacturer which uses copper as a raw material in the production expects high volatility in copper prices in the future. In order to hedge against potential adverse price movements, manufacturer asks a swap dealer to enter into a swap whereby it will pay a fixed amount to the swap dealer on the settlement dates and in turn swap dealer will pay spot price of copper per kilos on each settlement day. The following conditions apply:

• ?The settlement will be every three months, beginning two months from today.
• ?The swap's term will be 12 months andthe settlement dates are 3, 6, 9 & 12 months
• hence.

Part b) Suppose a manufacturer which uses copper as a raw material in the production expects high volatility in copper prices in the future. In order to hedge against potential adverse price movements, manufacturer asks a swap dealer to enter into a swap whereby it will pay a fixed amount to the swap dealer on the settlement dates and in turn swap dealer will pay spot price of copper per kilos on each settlement day. The following conditions apply: 0 The settlement will be every three months, beginning two months from today. 0 The swap's term will be 12 months and the settlement dates are 3, 6, 9 & 12 months hence. - As of today, the copper prices and spot interest rates are: Months to Next Delivery Date Copper Futures Price Interest rates (annual compounding) 3 4.950 3.0% 6 5.013 3.2% 9 5.076 3.5% 12 5.141 3.7% Calculate the possible fixed amount the swap dealer might offer. [15 marks]