ID: FRM.FRA.T.05 Fantra is a global leader in soft-drink manufacturing and distribution. Recently, Fantra's financial managers have had it brought to their attention the possibility of interest rate rises in the coming months. The managers decide to have a meeting to discuss this risk exposure. Select whether the following statements made during the meeting are correct or incorrect.Picture of Fantra logo Correct Incorrect a) 'The use of Forward Rate Agreements (FRAs) as a means to lock in a favourably low interest rate for future borrowing of funds seems to be the right way to go.' b) 'For a large company such as Fantra, who have large capital requirements, Forward Rate Agreements (FRAs) are a favourable means of hedging risk without increasing their capital requirements because FRAs are off balance sheet instruments.' c) 'If interest rates go up instead we will have to make the settlement payment. We will not have sufficient funds on the settlement date to make a payment if the situation arises.'

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