(FRA)A bank is considering using a "three against six" $2,000,000 FRA to cover its potential loss. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a six-month Eurodollar loan and having accepted a three-month Eurodollar deposit. The agreement rate with the buyer is 5.433%. There are actually 92 days in the three-month FRA period. If the settlement rate is 4.619% three months from today, then the FRA is worth (Keep two decimal places.)
(FRA)A bank is considering using a "three against six" $2,000,000 FRA to cover its potential loss. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a six-month Eurodollar loan and having accepted a three-month Eurodollar deposit. The agreement rate with the buyer is 5.433%. There are actually 92 days in the three-month FRA period. If the settlement rate is 4.619% three months from today, then the FRA is worth (Keep two decimal places.)
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:(FRA)A bank is considering using a "three against six" $2,000,000 FRA to cover its potential loss.
The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from
having made a six-month Eurodollar loan and having accepted a three-month Eurodollar deposit.
The agreement rate with the buyer is 5.433%. There are actually 92 days in the three-month FRA
period. If the settlement rate is 4.619% three months from today, then the FRA is worth
$
(Keep two decimal places.)
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