=%=%=%=\$=\$=\$=\$=\$=%=%=\$=%=#=#[email protected][email protected][email protected][email protected][email protected][email protected]=%=%=%=%=*=*=*=*=*=* Hi tutor please help me with this- Financial market and Institutions- 4th edition

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Question 11

April 1st 2016 – As a treasurer of Bright Fortune Ltd, a Singaporean company operating in Singapore but with USD as a functional currency, you just signed a 5-year loan with DBS where you borrow 10 million USD at a rate of 1-year Libor + 200 bps (basis points). The 1-year Libor rate on April 1st 2016 is 0.75%.

However, since the beginning of the year, there has been persistent market expectations that the US Federal Reserve might intensify its raising of short term interest rates from their historically – and abnormal – low level.

(a) Calculate – where possible – the amount of interest that you will pay to DBS.(2 marks)

(b) Analyse the risks (or lack thereof) that the loan exposes Bright Fortune to.(5 marks)

(c) Formulate a strategy using swaps to hedge this risk.(7 marks)