You are a corporate account officer with the Commercial & In- dustrial Bank Corporation (CIBC). One of your major manufacturing clients, who are re- tooling one of their factories, just bought a piece of customized machinery to be delivered in six months’ time. The company’s treasurer intends to initially finance the purchase in the short-term loan market for six months and inquires about the possibilities of locking in the borrowing cost now. The amount is USD 10m and the loan would be disbursed in a six months from now to be repaid in exactly one year’s time from now. The current SOFR term structure is as follows: Maturity (D) SOFR Rate (%) 30 0.15% 90 0.24% 180 0.33% 360 0.55% Use excel to calculate Define and calculate the SOFR forward Why or why not is it a good predictor for future SOFR rates? At expiration, e., six months after entering into the agreement, the 180D 20 SOFR stands at 0.90%. Who wins and who loses? Calculate the client’s gain or loss from your suggestion or the alternative, whichever you prefer.
You are a corporate account officer with the Commercial & In- dustrial Bank Corporation (CIBC). One of your major manufacturing clients, who are re- tooling one of their factories, just bought a piece of customized machinery to be delivered in six months’ time. The company’s treasurer intends to initially finance the purchase in the short-term loan market for six months and inquires about the possibilities of locking in the borrowing cost now. The amount is USD 10m and the loan would be disbursed in a six months from now to be repaid in exactly one year’s time from now. The current SOFR term structure is as follows: Maturity (D) SOFR Rate (%) 30 0.15% 90 0.24% 180 0.33% 360 0.55% Use excel to calculate Define and calculate the SOFR forward Why or why not is it a good predictor for future SOFR rates? At expiration, e., six months after entering into the agreement, the 180D 20 SOFR stands at 0.90%. Who wins and who loses? Calculate the client’s gain or loss from your suggestion or the alternative, whichever you prefer.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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- Commercial You are a corporate account officer with the Commercial & In-
dustrial Bank Corporation (CIBC). One of your major manufacturing clients, who are re- tooling one of their factories, just bought a piece of customized machinery to be delivered in six months’ time. The company’s treasurer intends to initially finance the purchase in the short-term loan market for six months and inquires about the possibilities of locking in the borrowing cost now. The amount is USD 10m and the loan would be disbursed in a six months from now to be repaid in exactly one year’s time from now. The current SOFR term structure is as follows:
|
Maturity (D) |
SOFR Rate (%) |
|
30 |
0.15% |
|
90 |
0.24% |
|
180 |
0.33% |
|
360 |
0.55% |
Use excel to calculate
- Define and calculate the SOFR forward Why or why not is it a good predictor for future SOFR rates?
- At expiration, e., six months after entering into the agreement, the 180D 20 SOFR stands at 0.90%. Who wins and who loses? Calculate the client’s gain or loss from your suggestion or the alternative, whichever you prefer.
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