The question stated that now is mid-December, the company HAS borrowed $30 million from the capital market to purchase equipment. The $30 million is due in 2 month’s time.
NO OTHER DATES WERE PROVIDED.
Thus, I understand that settlement date is on mid- February, where the company has to start borrowing the loan.
NO information was given as to how long the period for the loan to be fully repaid.
However, The answer given was:
1. To assume the loan was borrowed in Mid Dec, and repaid on February.
*I don’t understand this. Shouldn’t the loan be borrowed BEGINNING on Mid-February? as Payment was only Due on Mid-February itself.
*From what I understand, FRA 3v5 means to borrow a loan in 3 months time for a period of 5 months. So, is it really acceptable to assume that FRA 3v5 can be used on a 2 month loan?
This is a university exam question (internal), and I do not understand the answers. Hopefully someone could explain it! (Do feel free to voice out your views if you feel that the question is incomplete or the answer provided is inaccurate or unacceptable.)
Based on your question:
Not sure is it correct but hope its help.