TU Wien:Financial Management and Reporting VU (Aussenegg)/2025S Exam 1
19) [10 Points] A company has a € floating loan with remaining maturity of exactly 1.25 years (current date: 2.7.2024; loan expires on 2.10.2025). At the end of every 3-month period it has to pay 3-month Euribor plus 250 basis points p.a. as interest (i.e., e.g., the next payment takes place on 2.10.2024, thereafter on 2.1.2025, and so on).
On 2.7.2024 the current 3-month Euribor rate is 1.3% p.a. The CFO is expecting increasing interest rates. On 2.7.2024 the following 3-months-Euribor Futures prices can be observed:
| Contract | Price |
|---|---|
| July 2024 | 98.7175 |
| Aug 2024 | 98.72 |
| Sep 2024 | 98.73 |
| Oct 2024 | 98.725 |
| Dec 2024 | 98.70 |
| Mar 2025 | 98.795 |
| June 2025 | 98.82 |
| Sep 2025 | 98.825 |
| Dec 2025 | 98.80 |
| Mar 2026 | 98.82 |
Note: As usual, distinguish between payment and fixing dates of the floating loan interest rates. As usual, variable loan interest payments are fixed at the beginning and paid at the end of the corresponding payment period.
Questions:
- Which futures contract months should the CFO select to hedge against interest rate risk (for all future interest rate payments in the floating loan)?
- And which sign (i.e., long or short) have the futures positions you selected?
- Specify the net interest payment for the second payment (i.e., payment on 2.1.2025) in % p.a. (i.e., no nominal value of the loan required) in case the CFO is using Euribor Futures contracts to hedge against interest rate risk.