A bank sells a "three against six" $3,000,000 FRA for a three-month period beginning three months from today and endingsix months from today. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch fromhaving made a three-month Eurodollar loan and having accepted a six-month Eurodollar deposit. The agreement rate withthe buyer is 5.58 percent. There are actually 92 days in the three-month FRA period. Assume that three months from todaythe settlement rate is 6.165 percent. Determine how much the FRA is worth and who pays who-the buyer pays the selleror the seller pays the buyer. (Do not round intermediate calculations. Round your answer to 2 decimal places.)the absolute value of the FRA

A forward rate agreement is in place. On the date of settlement, the rate turns out to be different…

Answered: A bank sells a "three against six"…

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 26E

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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 5.62 percent. There are actually 92 days in the three-month FRA period. Assume that three months from today the settlement rate is 6.185 percent. Determine how much the FRA is worth and who pays who—the buyer pays the seller, or the seller pays the buyer. Note: Round your intermediate calculations to 6 decimal places. Round your answer to 2 decimal places. Assume 360 days in a year.
Required: 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 5.66 percent. There are actually 92 days in the three-month FRA period. Assume that three months from today the settlement rate is 4.955 percent. Determine how much the FRA is worth and who pays who-the buyer pays the seller, or the seller pays the buyer. Note: Round your intermediate calculations to 6 decimal places. Round your answer to 2 decimal places. Assume 360 days in a year. the absolute value of the FRA
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