A corporate treasurer knows her company will need to borrow $130 million in 3 months time for
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Question:
A corporate treasurer knows her company will need to borrow $130 million in 3 months time for 6 months. The treasurer is concerned that rates may rise, so she is considering buying a FRA. Current rates are given in the table:
Maturity (days) Rate (p.a.)
90 4.10%
180 4.55%
270 5.25%
360 5.60%
a) for a zero cost contract, the agreed upon rate specified by the FRA will be?
b) suppose in 6 months, all interest rates have increased by 2.5% (250 bp). The cash flows will be?
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