You are the treasurer of a corporation. When you prepare a investment appraisal, you know that the company requires borrowing USD 1 million in six months' time for a six-month period. If you borrow today, you have to pay 6-month LIBOR. The current 6-month and 12-month LIBOR are at 0.89465% p.a. and 0.9267% p.a., respectively. You forecast that the LIBOR may rise to 1.30% p.a. in six months' time. You use 360-day year convention.

(a) Determine the FRA rate.

(b) As anticipated by you, the 6-month LIBOR rose during the waiting period. In sixmonth's time, the 6-month LIBOR fixes at 1.26222% p.a. Determine the payment made to or by the company to settle the FRA contract.

Answer rating: 100% (QA)

To calculate the Forward Rate Agreement FRA rate a Determine the FRA rate The FRA rate is the fixed ... View the full answer