b. A bank sells a “three against six” $4,000,000 FRA for athree-month period beginning three months from today and ending sixmonths from today. The purpose of the FRA is to cover the interestrate risk caused by the maturity mismatch from having made athree-month Eurodollar loan and having accepted a six-monthEurodollar deposit. The agreement rate with the buyer is 6.5percent. There are actually 91 days in the three-month FRA period.Assume that three months from today the settlement rate is 4.875percent. Determine how much the FRA is worth and who pays who--thebuyer pays the seller or the seller pays the buyer.

c. What is a collateralized debt obligation and what effect didthey have on the credit crunch?

plz explain clearly thank you

Answer rating: 100% (QA)

b To determine the value of the FRA and who pays whom we need to calculate the settlement amount based on the given information Given Notional amount ... View the full answer