The Commonwealth Bank of Australia (CBA) has offered the chief financial officer (CFO) of META corporation a term loan with the following conditions attached. The loan will have a variable rate of interest of BBSW plus 95 basis points. The loan interest will be reset every three months for the duration of the loan.

a) Explain to the CFO the operation of these specific loan conditions. [3 marks]

b) How would the CFO obtain the new interest rate every three months? [3 marks]

c) The CBA incorporated a loan covenant into Metas loan contract. Explain why it may be necessary for financial institutions, like the CBA, to incorporate covenants into the loan contract. [3 marks]