Sox Ltd plans to issue $10 million of commercial paper (with a six-month maturity) two months from today to raise funds for an expected increase in working capital needs. Sox Ltd's Chief Financial Officer (CFO) is concerned about recent media reports predicting an increase in interest rates before the commercial paper is issued. Sox Ltd. intends using a 2 x 8 FRA which is quoted at 4.65%.

What is the dollar profit or loss on a hedging strategy using an FRA if the reference rate of interest in two months is 4.95%?

Answer rating: 100% (QA)

1 Calculate the FRA rate for the agreedupon period FRA rate FRA qu... View the full answer