The swap gives a result which is ma

The swap gives a result which is marginally worse than the forward rate agreement and the futures .The options give a worse result than the other choices .

Rsks which might be considered include counterparty risk for the forward rate agreement and swap .Using Birdam Bank should mean that this risk is low for forward rate agreements ,and also for swaps ,assuming that the bank bears the risk of the counterparty defaulting .

Basis risk should be considered or the traded futures .Here ,because the differences between : heinstruments are small ,a failure to estimate basis accurately may mean that futures are chosen when they do not offer the lowest borrowing cost .For the swaps ,if Lurgshall Co swaps into fixed rate debt ,it faces the market risk of an unexpected fall in interest rates .

Other factors to consider include the possibility that rates will increase rather ess than forecast ,meaning that the option would not be exercised and at some point would be the lowest cost choice .The length of time of the swap also needs to be considered .Although it commits Lurgshall Co to the fixed rate ,if the borrowing turns out to be longer than the six months ,the swap may provide a better time match than the other hedging opportunities .