Demonstrate That the Effective Cost of Funds for a $20

question 114

Essay

Demonstrate that the effective cost of funds for a $20 million 90-day bank bill issue in June is the forward rate established in April (when 20 June BAB futures are sold at 96.45), rather than the BBSW of 4.05% when the bills are issued in June.

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Definitions:

Current Year

Refers to the present calendar or fiscal year in which a business or entity operates.

Direct Material B

Direct Material B pertains to specific raw materials or components designated with a "B" classification, used directly in the production of goods.

Finished Goods Inventory

The stock of completed products that are ready to be sold but have not yet been sold.

Raw Materials Inventory

The total cost of all the components kept in stock that are used in the production process.