The financial manager of Town Ltd is concerned about the volatility of interest rates. His company needs to borrow $ 100million in 6 months time for a period of 2 years. Current interest rates are 15% per year for the type of loan that Town Ltd needs. The financial manager does not wish to pay an interest rate higher than

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
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The financial manager of Town Ltd is concerned about the volatility of interest rates. His company needs to borrow $ 100million in 6 months time for a period of 2 years. Current interest rates are 15% per year for the type of loan that Town Ltd needs. The financial manager does not wish to pay an interest rate higher than this. He is considering using different alternatives. For the following four alternatives, explain how each could be useful to the financial manager;

I). Forward rate agreement

II). Interest rate futures

III). Interest rate options

IV). Interest rate swaps

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