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Explain and Demonstrate How BAB Futures Contracts Can Be Used

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Essay

Explain and demonstrate how BAB futures contracts can be used to hedge a floating-rate borrower's exposure to interest rate risk.Assume that the borrower plans to issue 90-day bank bills with a face value of $80 million under a two-year bill facility commencing next September, that September BAB futures are trading at 94.75, and that the spot 90-day bill rate in September is 5.40%.


Definitions:

France

A country in Western Europe known for its rich history, cultural significance, and as a global center for art, fashion, and cuisine.

George Curzon

A British Conservative statesman who served as Viceroy of India and was influential in the foreign policy of the early 20th century, focusing on expansion and defense of the British Empire.

British Viceroy

A high official who ruled a country or a colony in the name of and as the representative of the monarch of the United Kingdom.

"Open Door" Policy

A diplomatic principle proposed by the United States in 1899 aimed at promoting equal trading rights among all countries in China and preserving Chinese territorial integrity.

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