Explain risk faced by your bank in spot market

Assignment Help Financial Management

Reference no: EM132064352

Today is April 1st. The bank you are working for needs to borrow $100 million on May 15th by selling 90-day Eurodollar deposits. Your bank’s Treasury desk is looking into derivatives contracts for hedging the bank’s risk and is interested in the June Eurodollar futures contract with a current price of 93.25 and a contract size of $1 million.

A. EXPLAIN the risk faced by your bank in the spot market and DETERMINE the futures position that the Treasury desk should take in order to hedge against this risk.

B. On May 15th, the LIBOR rate and the Eurodollar futures contract rate both are equal to 5 percent. Assuming that the Treasury desk constructs the hedge position you have identified in part (a), CALCULATE the hedged and unhedged effective cost of borrowing for your bank. EXPLAIN whether the hedge was a mistake.

Reference no: EM132064352

Questions Cloud

Overview of the technology involved : In this assessment, you are required to provide a complete report of your research project, that you chose in Assessment 3 (Research Project Abstract)

What does it mean to be created in the image of god : What does it mean to be created in the image of God? please describe one reflection that you had not thought about before.

Determine what would your next steps be : While reviewing Randy's discharge instructions with him, you notice that he is having difficulty holding the pen in his hand and appears to be unable.

Identify an ict-related ethical issue : Identify an ICT-related ethical issue from a media article or case study;

Explain risk faced by your bank in spot market : EXPLAIN the risk faced by your bank in the spot market and DETERMINE the futures position that Treasury desk should take in order to hedge against this risk.

What is the significance of the number 24 : Who might the 24 elders of the throne room vision represent? What is the significance of the number 24?

Conduct an interview with a nurse : Develop a plan for their chosen career path. Students may either conduct an interview with a nurse in the same or similar position

Case study on ashok leyland : Ashok Leyland, one of India's largest private companies, is a part of Hinduja Group. It is one of the country's largest automobile and auto component companies

What was the total amount of new money raised : What was the total amount of new money raised? The rights issue gave the shareholder the opportunity to buy one new share for less than the market price.

User Account

All Pages