Suppose that KF Exports enters into a FRA with Interfirst Bank with a notional principal of $50 million and the following terms: In six months, if LIBOR is above 6%, KF will pay Interfirst according to the standard FRA formula. On the other hand, if LIBOR is less than 6%, Interfirst will pay KF. If LIBOR is 5.5% in six months, who pays and how much will the company pay? What if LIBOR is 6.5%?
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