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Finance & Accounting
Pages 3 (753 words)
Finance and Accounting [Student Name] [Course title] [Supervisor Name] [Date] To: Firm AABC From: Currency Analyst (XYZ firm) Subject: Future Interest Rate Your company has borrowed 25 million Euros for two years therefore we are giving the details of the interest rate and future price rates that will help you to pay back the amount that you have borrowed.
As on 19 January 2012, the interest rate that is offered is 1.195%. Therefore, the overall interest rate that your firm has to pay is 3.195%. The total amount for the next three month is calculated as 25,000,000*(1.195%+2%)*89/360 = €197,468.75. It is highly recommended for your firm to make a fixed future contract because the economic conditions of some of the EU states are worsening and it is likely that one or two countries will default upon their payments and the EU will have to step in to save these economies. If this happens, the interest rate will jump very high as central borrowing will sharply increase to support these economies and your firm can end up paying higher interest on variable interest bearing loan.. The future contracts are consistent and the features of the contract are established. The variable price in future contract is negotiable and it is determined in open and regulated markets (Euronext 2012). If your company decides not to take fixed future contracts then your company has other two options as well. You can also do either swap contract or forward contract with any other company. The swap is an agreement of contract that is between the two companies. ...
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