Today is December 1st and the current 90-day bank bill rate is 10%. Your accounting team has discovered that you will have a cash flow shortage over the first quarter of next year. As such you will have to borrow $1000000 for three months from January 1st. As you are concerned about interest rate risk you have gone to your bank and asked them for a solution. They have offered you a loan with the interest rate capped at 11% that you can choose to use if the going bank bill interest rate is higher when it comes time for you to borrow on January 1st A. Show how this hedge would work if the going bank bill rate is 12% on January 14 Show all cash flows. (5 Marks) B. Show how this hedge would work if the going bank bill rate is 8% on January 1 (5 Marks) C. Discuss the difference between a forwards/futures and options? What are the relative advantages and disadvantages of each? (5 Marks) Today is December 1st and the current 90-day bank bill rate is 10%. Your accounting team has discovered that you will have a cash flow shortage over the first quarter of next year. As such you will have to borrow $1000000 for three months from January 1st. As you are concerned about interest rate risk you have gone to your bank and asked them for a solution. They have offered you a loan with the interest rate capped at 11% that you can choose to use if the going bank bill interest rate is higher when it comes time for you to borrow on January 1st A. Show how this hedge would work if the going bank bill rate is 12% on January 14 Show all cash flows. (5 Marks) B. Show how this hedge would work if the going bank bill rate is 8% on January 1 (5 Marks) C. Discuss the difference between a forwards/futures and options? What are the relative advantages and disadvantages of each