1.Some years ago Ford borrowed funds at the LIBOR3M +1%. Interest payments are made on a three months basis the 1/1, 1 /4, 1/7 and 1/10 of each year. Principal payments are made every six months the 1/1 and the 1/7 of each year for an amount equal to 5,000,000 Euro. Now we are at the first of February 2015: the principal is equal to 20,000,000 Euro and you know that the LIBOR3M for the first payment (1/4) is equal to 3.5%. Determine the hedging strategy: Specify which FRA/FRAs you should negotiate, at which rate and for which amount. must present and explain in words all the steps.
ASK
FRA 1,4
3.63%
FRA 2,5
3.75%
FRA 3,6
3.86%
FRA 4,7
3.94%
FRA 5,8
4.05%
FRA 6,9
4.21%
FRA 7,10
4.31%
FRA 8,11
4.43%
FRA 9,12
4.40%
2.Suppose that you are betting on an agricultural market. You wish to take on a position with five futures quinoa contracts at the price $7.30/bu. The margin requirement is 15%. Does it make sense to take on a short position in the quinoa market? Make your argument clear (I just need the answer that is it make sense to take a short position)
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