Question 3 TJA Corp. is anticipating a need to borrow $10 million in three months’ time for a period of six months. Its
Posted: Thu May 26, 2022 8:14 am
Question 3
TJA Corp. is anticipating a need to borrow $10 million in three
months’ time for a period of six months. Its banker, Bank of
America has agreed to provide a 6-month, $10 million loan at
LIBOR+0.5%. The 6-month LIBOR is now quoted at 3% pa.
Required
A. What target interest rates can TJA lock in using an FRA?
Describe the hedging strategy that the company would follow. [10
marks]
TJA Corp. is anticipating a need to borrow $10 million in three
months’ time for a period of six months. Its banker, Bank of
America has agreed to provide a 6-month, $10 million loan at
LIBOR+0.5%. The 6-month LIBOR is now quoted at 3% pa.
Required
A. What target interest rates can TJA lock in using an FRA?
Describe the hedging strategy that the company would follow. [10
marks]