A bank sells a "three against six" $3,000,000 FRA for a three-month period beginning three months from today and ending six months from today. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a three-month Eurodollar loan and having accepted a six-month Eurodollar deposit. The agreement rate with the buyer is 5.56 percent. There are actually 92 days in the three-month FRA period. Assume that three months from today the settlement rate is 4.905 percent. Determine how much the FRA is worth and who pays who-the buyer pays the seller or the seller pays the buyer. (Do not round intermediate calculations. Round your answer to 2 decimal places.) the absolute value of the FRA
A bank sells a "three against six" $3,000,000 FRA for a three-month period beginning three months from today and ending six months from today. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a three-month Eurodollar loan and having accepted a six-month Eurodollar deposit. The agreement rate with the buyer is 5.56 percent. There are actually 92 days in the three-month FRA period. Assume that three months from today the settlement rate is 4.905 percent. Determine how much the FRA is worth and who pays who-the buyer pays the seller or the seller pays the buyer. (Do not round intermediate calculations. Round your answer to 2 decimal places.) the absolute value of the FRA
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Problem 11.2
A bank sells a "three against six" $3,000,000 FRA for a three-month period beginning three months from today and ending six months
from today. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a three-month
Eurodollar loan and having accepted a six-month Eurodollar deposit. The agreement rate with the buyer is 5.56 percent. There are
actually 92 days in the three-month FRA period. Assume that three months from today the settlement rate is 4.905 percent. Determine
how much the FRA is worth and who pays who-the buyer pays the seller or the seller pays the buyer. (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
the absolute value of the FRA
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