Question

ABC Bank (seller) has made a "three against six" Forward Rate Agreement (FRA), with XYZ Bank (buyer).

Assume that the:
Notional Amount = $4,000,000
Settlement Rate (SR) (i.e., three-month market LIBRO) = 5%
Agreement Rage (AR) = 6%
Actual number of days in the three-month agreement period = 91

Multiple Choice

• $10,111.

• $120,000.

• $60,667.

• $9,985.

Answer 1

Payoff to the long in an FRA=4000000*(6%-5%)*91/360*1/(1+5%*91/360)
=9984.9129063