INTEREST RATE FUTURE ( IRF ON T BILL) DIFFICULT CONCEPT OF CA FINAL SFM
Channel: PAVAN SIR CLASSES
Date: 2021-04-05

Electra space is consumer electronics wholesaler. The business of the firm is highly seasonal in nature. In 6 months of a year, firm has a huge cash deposits and especially near Christmas time and other 6 months firm cash crunch, leading to borrowing of money to cover up its exposures for running the business. 
It is expected that firm shall borrow a sum of €50 million for the entire period of slack season in about 3 months. 
A Bank has given the following quotations: 
Spot 5.50% - 5.75% 
3 × 6 FRA 5.59% - 5.82% 
3 × 9 FRA 5.64% - 5.94% 
3 month €50,000 future contract maturing in a period of 3 months is quoted at 94.15 (5.85%). 
You are required to determine: 
(a) How a FRA, shall be useful if the actual interest rate after 3 months turnout to be:  (i) 4.5%    (ii) 6.5% 
(b) How 3 months Future contract shall be useful for company if interest rate turns out as mentioned in part (a) above.