FRA – NBC Institute

SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

Question

With reference to Option Two:

i) What would be its effective rate of borrowing for the three months if US dollar LIBOR is 4.50% at the start of the notional interest period for the FRA? (2 marks)
ii) What are the advantages of Convertible Bonds? (3 marks)

Answer

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Tags: Borrowing rate, Convertible Bonds, Financing, FRA
Level: Level 3

Topic: Financial management
Series: MAR 2024

AFM – May 2017 – L3 – Q5a – Hedging against financial risk: Non-derivative techniques

Calculation of settlement value, loan amount, interest on loan, and effective interest rate under a Forward Rate Agreement.

Question

The Board of Directors of Aduana Enterprise has approved an expansion project which will require a cash inflow of GH¢10 million. The investment duration will be 6 months, and management is considering taking a fixed interest rate loan from its bankers. The loan will be required in three months from the date of board’s approval.

Management of Aduana is considering hedging its risk exposure using a Forward Rate Agreement (FRA). The 3-9 months’ FRA rate at the transaction date was 5%.

Required:
If the spot rate at the settlement date is 8%, calculate the following:
i) Settlement value (3 marks)
ii) Loan amount required (2 marks)
iii) Interest on the loan (2 marks)
iv) Effective interest rate (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Forward Rate Agreement, FRA, Interest calculation, Interest rate hedging, Loan management
Level: Level 3

Topic: Hedging against financial risk: Non-derivative techniques
Series: MAY 2017

SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

Question

With reference to Option Two:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Borrowing rate, Convertible Bonds, Financing, FRA
Level: Level 3

Topic: Financial management
Series: MAR 2024

AFM – May 2017 – L3 – Q5a – Hedging against financial risk: Non-derivative techniques

Calculation of settlement value, loan amount, interest on loan, and effective interest rate under a Forward Rate Agreement.

Question

Management of Aduana is considering hedging its risk exposure using a Forward Rate Agreement (FRA). The 3-9 months’ FRA rate at the transaction date was 5%.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Forward Rate Agreement, FRA, Interest calculation, Interest rate hedging, Loan management
Level: Level 3

Topic: Hedging against financial risk: Non-derivative techniques
Series: MAY 2017

Question Tag: FRA

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SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

AFM – May 2017 – L3 – Q5a – Hedging against financial risk: Non-derivative techniques

Calculation of settlement value, loan amount, interest on loan, and effective interest rate under a Forward Rate Agreement.

SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

AFM – May 2017 – L3 – Q5a – Hedging against financial risk: Non-derivative techniques

Calculation of settlement value, loan amount, interest on loan, and effective interest rate under a Forward Rate Agreement.

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SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

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AFM – May 2017 – L3 – Q5a – Hedging against financial risk: Non-derivative techniques

Calculation of settlement value, loan amount, interest on loan, and effective interest rate under a Forward Rate Agreement.

You're reporting an error for "AFM – May 2017 – L3 – Q5a – Hedging against financial risk: Non-derivative techniques"

SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

You're reporting an error for "SCS – MAR 2024 – L3 – Q5b – Financial management"

AFM – May 2017 – L3 – Q5a – Hedging against financial risk: Non-derivative techniques

Calculation of settlement value, loan amount, interest on loan, and effective interest rate under a Forward Rate Agreement.

You're reporting an error for "AFM – May 2017 – L3 – Q5a – Hedging against financial risk: Non-derivative techniques"

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