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Net proceeds from the futures

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a. It's June and a company is planning to issue $4,000,000 of face value in 90-day bank bills in December. The company is worried that the interest rates may rise and decides to hedge using December BAB futures. The December BAB futures are currently trading at 98.20. The underlying of each futures contract is $1,000,000 (face value) Bank Accepted Bills. Describe how to set up the hedge.

b. What will be the profit/loss on the futures transactions if the cash interest rate is equal to 3% in December?

c. What will be the net proceeds from the futures and the issue of the Bills in December?

Reference no: EM133059600

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