--%>
Assignment Help - homework help

Question on FRA

A bank sells “three against nine” $3,000,000 FRA for a six-month period beginning from three months from today and ending nine months from today.  The reason of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a three-month Eurodollar loan & having accepted a nine-month Eurodollar deposit.  The agreement rate along the buyer is 5.5 percent.  There are in fact 183 days in the six-month period.  Suppose that three months from today the settlement rate is 4 7/8 percent.  Estimate how much the FRA is worth and who pays whom the buyer pays the seller or the seller pays the buyer.

As the settlement rate is less than the agreement rate, the buyer pays the seller the absolute value of the FRA.  The absolute value of the FRA is following:

 $3,000,000 x [(.04875-.055) x 183/360]/[1 + (.04875 x 183/360)]

      =  $3,000,000 x [-.003177/(1.024781)]

      =  $9,300.52.

 

   Related Questions in Financial Management

  • Q : Role of earnings and cash What is the

    What is the role of earnings and cash while a corporation is deciding how much cash dividends to give to common stockholders?

    		•
  • Q : What is Vomma or Volga in option value

    What is Vomma or Volga in option value?

    		•
  • Q : Appraisal of AFEP and CNPF In the year

    In the year of 1995, a working group of French chief executive officers was set up by the French Association of Private Companies (AFEP) and Confederation of French Industry (CNPF) to study the French corporate governance structure. The group reported the prov

    		•
  • Q : Factors that common stockholders would

    What are those factors that common stockholders would consider while deciding how much cash dividends they want from corporation in which they have invested?

    		•
  • Q : Considerations of theory of comparative

    What considerations might restrict the extent on which the theory of comparative advantage is realistic?Originally the theory of comparative advantage was advanced by the nineteenth century economist David Ricardo as an explanation for why natio

    		•
  • Q : Mutually exclusive projects Provide

    Provide three examples of mutually exclusive projects.

    		•
  • Q : International bank crisis involving

    In brief discuss the cause & the solution(s) to the international bank crisis involving less developed countries.The international debt crisis started on August 20, 1982 while Mexico asked more than 100 U.S. and foreign banks to forgive its

    		•
  • Q : Explain concept of company debt

    Who introduced the concept of company’s debt associated to the strike price and the maturity of the debt?

    		•
  • Q : Acc Fin Assume that you inherited some

    Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling securities that call for 4 payments of $50 (1 payment at the end of each of the next 4 years) plus an extra payment of $1,000 at the end of Year 4. Your friend sa

    		•
  • Q : Running of net balance of payments

    Explain how a country can run net balance of payments deficit or surplus.A country can run net BOP deficit or surplus by engaging in the official reserve transactions. For instance, an overall BOP deficit can be supported through drawing down th

    		•