What kind of investment opportunity

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Commercial Banking. You are a corporate account officer with TLTF ("Too Large To 100 Fail") Bank. One of your major clients just sold a piece of customized machinery to be delivered in one year's time. The company's CFO inquires about the possibilities of investing USD 10 m in a year from now for one year.

(a) What kind of investment opportunity (contract) would you suggest to them?

(b) Currently, 1-year and 2-year spot rates are 6.50% and 7.25%, respectively. Quote a return for the preceding investment suggestion. Since your customer is of a somewhat suspicious nature you need to indicate the formula used to derive the quote.

(c) What alternative investments could you suggest to your customer?

(d) Define the forward curve. Why or why not is it a good predictor of future interest rates?

Reference no: EM132404547

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