{"id":6688,"date":"2020-11-15T08:48:21","date_gmt":"2020-11-15T08:48:21","guid":{"rendered":"http:\/\/onlineclassesguru.com\/?p=6688"},"modified":"2020-11-15T08:48:21","modified_gmt":"2020-11-15T08:48:21","slug":"a-treasurer-of-company-a-expects-to-receive-a-cash-inflow-of-15-million-in-90-days","status":"publish","type":"post","link":"https:\/\/onlineclassesguru.com\/index.php\/2020\/11\/15\/a-treasurer-of-company-a-expects-to-receive-a-cash-inflow-of-15-million-in-90-days\/","title":{"rendered":"A treasurer of Company A expects to receive a cash inflow of $15 million in 90 days."},"content":{"rendered":"<style type=\"text\/css\"><\/style><p>FIN 4324 Assignment 5<\/p>\n<p>Name:<\/p>\n<p>[1-2] A treasurer of Company A expects to receive a cash inflow of $15 million in 90 days.<\/p>\n<p>The treasurer expects short-term interest rates to fall during the next 90 days. In order to<\/p>\n<p>hedge against this risk, the treasurer decides to use an FRA that expires in 90 days and is<\/p>\n<p>based on 90-day LIBOR. The FRA is quoted at 5%. At expiration, LIBOR is 4.5%.<\/p>\n<p>Assume that the notional principal amount on the contract is $15 million.<\/p>\n<p>1. Indicate whether the treasurer should take a long or short position to hedge interest rate<\/p>\n<p>risk.<\/p>\n<p>2. Calculate the gain or loss to Company A as a consequence of entering the FRA.<\/p>\n<p>3. Your financial firm needs to borrow $500 million by selling time deposits with 180-<\/p>\n<p>day maturities. If interest rates on comparable deposits are currently at 3.5 percent,<\/p>\n<p>what is the cost of issuing these deposits? Suppose interest rates rise to 4.5 percent.<\/p>\n<p>What then will be the cost of these deposits? What position and types of futures contract<\/p>\n<p>could be used to deal with this cost increase?<\/p>\n<p>4. By what amount will the market value of a Treasury bond futures contract change if<\/p>\n<p>interest rates rise from 5 to 5.25 percent? The underlying Treasury bond has a duration<\/p>\n<p>of 10.48 years and the Treasury bond futures contract is currently being quoted at 113-<\/p>\n<p>06. (Remember that Treasury bonds are quoted in 32nds.)<\/p>\n<p>5. Morning View National Bank reports that its assets have a duration of 7 years and its<\/p>\n<p>liabilities average 1.75 years in duration. To hedge this duration gap, management plans<\/p>\n<p>to employ Treasury bond futures, which are currently quoted at 112-170 and have a<\/p>\n<p>2<\/p>\n<p>duration of 10.36 years. Morning View\u0092s latest financial report shows total assets of<\/p>\n<p>$100 million and liabilities of $88 million. Approximately how many futures contracts<\/p>\n<p><center><a href=\"http:\/\/onlineclassesguru.com\/orders\/ordernow\"><img decoding=\"async\" src=\"https:\/\/encrypted-tbn0.gstatic.com\/images?q=tbn:ANd9GcTyj99p60XCLyLk1htB7-1neRt8-2QdnenNlQ&usqp=CAU\"target=\"_http:\/\/onlineclassesguru.com\/orders\/ordernow\"\/><\/center><p>","protected":false},"excerpt":{"rendered":"<p>FIN 4324 Assignment 5 Name: [1-2] A treasurer of Company A expects to receive a cash inflow of $15 million in 90 days. The treasurer expects short-term interest rates to fall during the next 90 days. In order to hedge against this risk, the treasurer decides to use an FRA that expires in 90 days&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-6688","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v17.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>A treasurer of Company A expects to receive a cash inflow of $15 million in 90 days. - onlineclassesguru<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/onlineclassesguru.com\/index.php\/2020\/11\/15\/a-treasurer-of-company-a-expects-to-receive-a-cash-inflow-of-15-million-in-90-days\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A treasurer of Company A expects to receive a cash inflow of $15 million in 90 days. - onlineclassesguru\" \/>\n<meta property=\"og:description\" content=\"FIN 4324 Assignment 5 Name: [1-2] A treasurer of Company A expects to receive a cash inflow of $15 million in 90 days. The treasurer expects short-term interest rates to fall during the next 90 days. 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