1. Your firm anticipates receiving a $10 million payment in 3 months, and wants to invest that money for 3 months at ICELIBOR rates for 3 months (or 91 days) once they receive it. You contact your bank and determine that the bid/ask rates for a $10 million FRA is 0.50%/0.55%. Your firm decides that it will enter into the appropriate FRA to lock in the lending rate today.

1. What is the position that your firm takes... long or short?

1. Your firm enters into the FRA today. Three months from now, 3 month ICELIBOR rates are 0.60%. Calculate the gains/losses from the FRA position, and show that you effectively locked in the lending rate upon entering the FRA.

Same question as (b), but the ICELIBOR rates in 3 months are 0.45%.Calculate the gains/losses from the FRA position, and show that you effectively locked in the lending rate upon entering the FRA.

Answer rating: 100% (QA)

In this scenario your firm anticipates receiving a 10 million payment in 3 months and wants to inves... View the full answer