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Show the steps in the borrowing hedge

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A financial institution expects to borrow $100,000 in 6 month's time. The current rate of interest is 5% p.a. and is expected to rise. Bank bill futures contracts with a face value of $100,000 are currently trading at 5.5%.

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Problem 1: Show the steps in the borrowing hedge, outlining the underlying and futures positions and the net cost of funds if interest rates rise to 7% p.a. over the next 6 months. Show all calculations. Use dot points where necessary.

Reference no: EM132968245

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