TDK Industries Approached a Bank in April to Organise Financing

question 102

Essay

TDK Industries approached a bank in April to organise financing through a 180-day bank bill facility.The facility will begin in June using 90-day bank bills with a total face value of $10 million.The company wishes to know what they can do now to hedge against interest rate risk.Assume that June and September BAB futures contracts are currently trading at 95.70 and 95.30 respectively and that 90-day BBR in June is 4% and in September it is 5%.Demonstrate the effective interest rate established for the duration of the bill facility, through the use of bank bill futures contracts.

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Definitions:

Acetylcholine

A neurotransmitter in the central and peripheral nervous system, involved in muscle activation, memory formation, and learning.

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